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Normative Inference in Efficient Markets

Author

Listed:
  • Marek Weretka

    (University of Wisconsin-Madison
    Group for Research in Applied Economics (GRAPE))

Abstract

This paper develops a non-parametric 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, 2018. "Normative Inference in Efficient Markets," GRAPE Working Papers 29, GRAPE Group for Research in Applied Economics.
    • Handle: RePEc:fme:wpaper:29
    as

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    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. repec:dau:papers:123456789/13505 is not listed on IDEAS
    3. 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.
    4. Geanakoplos, J. D. & Polemarchakis, H. M., 1990. "Observability and optimality," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 153-165.
    5. 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.
    6. 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.
    7. Philip Dybvig & Heraklis Polemarchakis, 1981. "Recovering Cardinal Utility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(1), pages 159-166.
    8. 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)

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    More about this item

    Keywords

    Collateral Constraints; Adaptive Learning; Financial Shocks; Great Recession;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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