IDEAS home Printed from https://ideas.repec.org/a/spr/joecth/v68y2019i4d10.1007_s00199-018-1144-6.html
   My bibliography  Save this article

Normative inference in efficient markets

Author

Listed:
  • Marek Weretka

    (University of Wisconsin-Madison
    FAME|GRAPE)

Abstract

This paper develops a nonparametric method to infer social preferences over policies from prices of securities when agents have non-stationary heterogeneous preferences. We allow for arbitrary efficient risk-sharing mechanisms, formal and informal, and consider a large class of policies. We present a condition on the distribution of aggregate wealth that is necessary and sufficient for the revelation of social preferences over a universal set of policies. We also provide a weaker condition that is sufficient for revelation of social preferences for an arbitrary finite collection of policies.

Suggested Citation

  • Marek Weretka, 2019. "Normative inference in efficient markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(4), pages 787-810, November.
    • Handle: RePEc:spr:joecth:v:68:y:2019:i:4:d:10.1007_s00199-018-1144-6
    DOI: 10.1007/s00199-018-1144-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00199-018-1144-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00199-018-1144-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. De Weerdt, Joachim & Dercon, Stefan, 2006. "Risk-sharing networks and insurance against illness," Journal of Development Economics, Elsevier, vol. 81(2), pages 337-356, December.
    2. Geanakoplos, J. D. & Polemarchakis, H. M., 1990. "Observability and optimality," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 153-165.
    3. Attila Ambrus & Markus Mobius & Adam Szeidl, 2014. "Consumption Risk-Sharing in Social Networks," American Economic Review, American Economic Association, vol. 104(1), pages 149-182, January.
    4. Orazio Attanasio & Abigail Barr & Juan Camilo Cardenas & Garance Genicot & Costas Meghir, 2012. "Risk Pooling, Risk Preferences, and Social Networks," American Economic Journal: Applied Economics, American Economic Association, vol. 4(2), pages 134-167, April.
    5. Fernando Alvarez & Urban J. Jermann, 2004. "Using Asset Prices to Measure the Cost of Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1223-1256, December.
    6. Kubler, F. & Chiappori, P. -A. & Ekeland, I. & Polemarchakis, H. M., 2002. "The Identification of Preferences from Equilibrium Prices under Uncertainty," Journal of Economic Theory, Elsevier, vol. 102(2), pages 403-420, February.
    7. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, October.
    8. Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-651, October.
    9. Fafchamps, Marcel & Lund, Susan, 2003. "Risk-sharing networks in rural Philippines," Journal of Development Economics, Elsevier, vol. 71(2), pages 261-287, August.
    10. Jorgenson, Dale W, 1990. "Aggregate Consumer Behavior and the Measurement of Social Welfare," Econometrica, Econometric Society, vol. 58(5), pages 1007-1040, September.
    11. Philip Dybvig & Heraklis Polemarchakis, 1981. "Recovering Cardinal Utility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(1), pages 159-166.
    12. Maurizio Mazzocco, 2007. "Household Intertemporal Behaviour: A Collective Characterization and a Test of Commitment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(3), pages 857-895.
    13. repec:dau:papers:123456789/13505 is not listed on IDEAS
    14. Orazio Attanasio & Abigail Barr & Juan Camilo Cardenas & Garance Genicot & Costas Meghir, 2012. "Risk Pooling, Risk Preferences, and Social Networks," American Economic Journal: Applied Economics, American Economic Association, vol. 4(2), pages 134-67, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xiao Yu Wang, 2014. "Risk Sorting, Portfolio Choice, and Endogenous Informal Insurance," NBER Working Papers 20429, National Bureau of Economic Research, Inc.
    2. Islam, Asad & Nguyen, Chau, 2018. "Do networks matter after a natural disaster? A study of resource sharing within an informal network after Cyclone Aila," Journal of Environmental Economics and Management, Elsevier, vol. 90(C), pages 249-268.
    3. Jain, Prachi, 2020. "Imperfect monitoring and informal insurance: The role of social ties," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 241-256.
    4. Attila Ambrus & Markus Mobius & Adam Szeidl, 2014. "Consumption Risk-Sharing in Social Networks," American Economic Review, American Economic Association, vol. 104(1), pages 149-182, January.
    5. Ethan Ligon & Laura Schechter, 2020. "Structural Experimentation to Distinguish between Models of Risk Sharing with Frictions in Rural Paraguay," Economic Development and Cultural Change, University of Chicago Press, vol. 69(1), pages 1-50.
    6. Christian Cox & Akanksha Negi & Digvijay Negi, 2022. "Risk-Sharing Tests with Network Transaction Costs," Monash Econometrics and Business Statistics Working Papers 5/22, Monash University, Department of Econometrics and Business Statistics.
    7. Heath Henderson & Arnob Alam, 2022. "The structure of risk-sharing networks," Empirical Economics, Springer, vol. 62(2), pages 853-886, February.
    8. Daniela Di Cagno & Emanuela Sciubba & Marco Spallone, 2012. "Choosing a gambling partner: testing a model of mutual insurance in the lab," Theory and Decision, Springer, vol. 72(4), pages 537-571, April.
    9. Dorner, Matthias & Harhoff, Dietmar & Hinz, Tina & Hoisl, Karin & Bender, Stefan, 2016. "Social ties for labor market access - Lessons from the migration of East German inventors," IAB-Discussion Paper 201641, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    10. Jaramillo, Fernando & Kempf, Hubert & Moizeau, Fabien, 2015. "Heterogeneity and the formation of risk-sharing coalitions," Journal of Development Economics, Elsevier, vol. 114(C), pages 79-96.
    11. Orazio Attanasio & Abigail Barr & Juan Camilo Cardenas & Garance Genicot & Costas Meghir, 2012. "Risk Pooling, Risk Preferences, and Social Networks," American Economic Journal: Applied Economics, American Economic Association, vol. 4(2), pages 134-167, April.
    12. F. Pericoli & E. Pierucci & L. Ventura, 2015. "The impact of social capital on consumption insurance and income volatility in the UK: evidence from the British Household Panel Survey," Review of Economics of the Household, Springer, vol. 13(2), pages 269-295, June.
    13. Bryan S. Graham, 2019. "Network Data," Papers 1912.06346, arXiv.org.
    14. Kubler, F. & Chiappori, P. -A. & Ekeland, I. & Polemarchakis, H. M., 2002. "The Identification of Preferences from Equilibrium Prices under Uncertainty," Journal of Economic Theory, Elsevier, vol. 102(2), pages 403-420, February.
    15. Harhoff, Dietmar & Dorner, Matthias & Hinz, Tina & Hoisl, Karin & Bender, Stefan, 2016. "Social Ties for Labor Market Access – Lessons from the Migration of East German Inventors," CEPR Discussion Papers 11601, C.E.P.R. Discussion Papers.
    16. Juan Daniel Hernandez & Fernando Jaramillo & Hubert Kempf & Fabien Moizeau & Thomas Vendryes, 2023. "Limited Commitment, Social Control and Risk-Sharing Coalitions in Village Economies," Documents de recherche 23-03, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    17. Chen, Bo & Zeng, Ning & Tam, Kwo Ping, 2024. "Do social networks affect household financial vulnerability? Evidence from China," Finance Research Letters, Elsevier, vol. 59(C).
    18. E Lance Howe & James J Murphy & Drew Gerkey & Colin Thor West, 2016. "Indirect Reciprocity, Resource Sharing, and Environmental Risk: Evidence from Field Experiments in Siberia," PLOS ONE, Public Library of Science, vol. 11(7), pages 1-17, July.
    19. Vesely, Stepan & Wengström, Erik, 2017. "Risk and Cooperation: Experimental Evidence from Stochastic Public Good Games," Working Papers 2017:3, Lund University, Department of Economics.
    20. Abigail Barr & Mattea Stein, 2022. "Social status and egalitarianism in non-lineage-based, agrarian communities in sub-Saharan Africa: An analysis of funeral attendance," Discussion Papers 2022-01, University of Nottingham, CREDIT.

    More about this item

    Keywords

    Social preferences; Normative predictions; Asset prices;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:68:y:2019:i:4:d:10.1007_s00199-018-1144-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.