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Unawareness and bankruptcy: A general equilibrium model

  • Salvatore Modica

    (Universita` di Palermo, IMRO, I-98121 Palermo, ITALY)

  • J.-Marc Tallon

    (CNRS-MAD, Université Paris I, F-75634 Paris Cedex 13, FRANCE)

  • Aldo Rustichini

    (CentER, Tilburg University, P.O. Box 90153, NL-5000 LE Tilburg, THE NETHERLANDS)

We present a consistent pure-exchange general equilibrium model where agents may not be able to foresee all possible future contingencies. In this context, even with nominal assets and complete asset markets, an equilibrium may not exist without appropriate assumptions. Specific examples are provided. An existence result is proved under the main assumption that there are sufficiently many states that all the agents foresee. An intrinsic feature of the model is bankruptcy, which agents may involuntarily experience in the unforeseen states.

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Article provided by Springer in its journal Economic Theory.

Volume (Year): 12 (1998)
Issue (Month): 2 ()
Pages: 259-292

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Handle: RePEc:spr:joecth:v:12:y:1998:i:2:p:259-292
Note: Received: April 23, 1997; revised version: May 19, 1997
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