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General equilibrium, wariness and efficient bubbles

  • Araujo, Aloisio
  • Novinski, Rodrigo
  • Páscoa, Mário R.

Wary consumers overlook gains but not losses in remote sets of dates or states. As preferences are upper but not lower Mackey semi-continuous, Bewley[modifier letter apostrophe]s (1972) [4] result on existence of equilibrium whose prices are not necessarily countably additive holds. Wariness is related to lack of myopia and to ambiguity aversion (and, therefore, to Bewley[modifier letter apostrophe]s (1986) [6] work on Knightian uncertainty). Wary infinite lived agents have weaker transversality conditions allowing them to be creditors at infinity and for bubbles to occur in positive net supply assets completing the markets. There are efficient allocations that can only be implemented with asset bubbles.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 3 (May)
Pages: 785-811

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:3:p:785-811
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