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Non-existence of competitive equilibria with dynamically inconsistent preferences

Author

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  • Tommaso Gabrieli
  • Sayantan Ghosal

Abstract

This paper shows the robust non-existence of competitive equilibria even in a simple three period representative agent economy with dynamically inconsistent preferences. We distinguish between a sophisticated and naive representative agent. Even when underlying preferences are monotone and convex, at given prices, we show by example that the induced preference of the sophisticated representative agent over choices in first-period markets is both non-convex and satiated. Even allowing for negative prices, the market-clearing allocation is not contained in the convex hull of demand. Finally, with a naive representative agent, we show that perfect foresight is incompatible with market clearing and individual optimization at given prices. Copyright Springer-Verlag 2013

Suggested Citation

  • Tommaso Gabrieli & Sayantan Ghosal, 2013. "Non-existence of competitive equilibria with dynamically inconsistent preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(1), pages 299-313, January.
  • Handle: RePEc:spr:joecth:v:52:y:2013:i:1:p:299-313
    DOI: 10.1007/s00199-011-0623-9
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    Cited by:

    1. Koichi Futagami & Daiki Maeda, 2022. "Naive Agents with Non-unitary Discounting Rate in a Monetary Economy," Discussion Papers in Economics and Business 21-28, Osaka University, Graduate School of Economics.
    2. Cingiz, Kutay & Flesch, János & Herings, P. Jean-Jacques & Predtetchinski, Arkadi, 2016. "Doing it now, later, or never," Games and Economic Behavior, Elsevier, vol. 97(C), pages 174-185.
    3. Takeshi Ojima, 2013. "General Equilibrium Dynamics with Naive and Sophisticated Hyperbolic Consumers in an Overlapping Generations Economy," ISER Discussion Paper 0886r, Institute of Social and Economic Research, Osaka University, revised Jan 2014.
    4. repec:dpr:wpaper:0886 is not listed on IDEAS
    5. Liya Liu & Yingjie Niu & Yuanping Wang & Jinqiang Yang, 2020. "Optimal consumption with time-inconsistent preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 70(3), pages 785-815, October.
    6. Futagami, Koichi & Maeda, Daiki, 2023. "Naïve agents with non-unitary discounting rate in a monetary economy," Journal of Macroeconomics, Elsevier, vol. 78(C).
    7. Dziewulski, Paweł, 2015. "Efficiency of competitive equilibria in economies with time-dependent preferences," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 311-325.
    8. Woźny Łukasz, 2016. "On the Price of Commitment Assets in a General Equilibrium Model with Credit Constraints and Tempted Consumers," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(2), pages 579-598, June.
    9. Takeshi Ojima, 2018. "General Equilibrium Dynamics with Naïve and Sophisticated Hyperbolic Consumers in an Overlapping Generations Economy," Economica, London School of Economics and Political Science, vol. 85(338), pages 281-304, April.
    10. Kang, Jingoo & Kang, Minwook, 2022. "Durable goods as commitment devices under quasi-hyperbolic discounting," Journal of Mathematical Economics, Elsevier, vol. 99(C).

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    More about this item

    Keywords

    Dynamically inconsistent preferences; Competitive equilibrium; Existence; Satiation; Non-convexity; D50; D91;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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