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Intertemporal equilibrium with production: bubbles and efficiency

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Abstract

We consider a general equilibrium model with heterogeneous agents, borrowing constraints, and exogenous labor supply. First, the existence of intertemporal equilibrium is proved even if the aggregate capitals are not uniformly bounded above and the production functions are not time invariant. Second, (i) we call by physical capital bubble a situation in which the fundamental value of physical capital is lower than its price, (ii) we say that the interest rates are low if the sum of interest rates is finite. We show that physical capital bubble is equivalent to a situation with low interest rates. Last, we prove that with linear technologies, every intertemporal equilibrium is efficient. Moreover, there is a room for both efficiency and bubble

Suggested Citation

  • Stefano Bosi & Cuong Le Van & Ngoc-Sang Pham, 2014. "Intertemporal equilibrium with production: bubbles and efficiency," Documents de travail du Centre d'Economie de la Sorbonne 14043, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:14043
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    1. repec:ipg:wpaper:2014-560 is not listed on IDEAS
    2. repec:ipg:wpaper:2014-604 is not listed on IDEAS
    3. Bosi, Stefano & Van, Cuong Le & Pham, Ngoc-Sang, 2018. "Intertemporal equilibrium with heterogeneous agents, endogenous dividends and collateral constraints," Journal of Mathematical Economics, Elsevier, vol. 76(C), pages 1-20.
    4. repec:ipg:wpaper:2014-511 is not listed on IDEAS
    5. Bosi, Stefano & Le Van, Cuong & Pham, Ngoc-Sang, 2017. "Asset bubbles and efficiency in a generalized two-sector model," Mathematical Social Sciences, Elsevier, vol. 88(C), pages 37-48.
    6. Takashi Kamihigashi, 2015. "A Simple No-Bubble Theorem for Deterministic Sequential Economies," Discussion Paper Series DP2015-38, Research Institute for Economics & Business Administration, Kobe University.
    7. Becker, Robert A. & Borissov, Kirill & Dubey, Ram Sewak, 2015. "Ramsey equilibrium with liberal borrowing," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 296-304.
    8. repec:ipg:wpaper:2014-556 is not listed on IDEAS
    9. Stefano Bosi & Cuong Le Van & Ngoc-Sang Pham, 2015. "Intertemporal equilibrium with heterogeneous agents, endogenous dividends and borrowing constraints," Documents de travail du Centre d'Economie de la Sorbonne 15067, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    10. Takashi Kamihigashi, 2016. "A Simple Optimality-Based No-Bubble Theorem for Deterministic Sequential Economies," Discussion Paper Series DP2016-22, Research Institute for Economics & Business Administration, Kobe University.
    11. repec:ipg:wpaper:2014-567 is not listed on IDEAS
    12. Cuong Le Van & Ngoc-Sang Pham, 2016. "Intertemporal equilibrium with financial asset and physical capital," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 155-199, June.
    13. repec:hal:journl:halshs-01316876 is not listed on IDEAS
    14. repec:ipg:wpaper:2014-462 is not listed on IDEAS
    15. Takashi Kamihigashi, 2015. "A Simple No-Bubble Theorem," Discussion Paper Series DP2015-03, Research Institute for Economics & Business Administration, Kobe University.
    16. Kamihigashi, Takashi, 2018. "A Simple optimality-based no-bubble theorem for deterministic sequential economies with strictly monotone preferences," Mathematical Social Sciences, Elsevier, vol. 91(C), pages 36-41.
    17. repec:ipg:wpaper:2014-468 is not listed on IDEAS
    18. repec:ipg:wpaper:2014-572 is not listed on IDEAS
    19. repec:ipg:wpaper:2014-531 is not listed on IDEAS
    20. repec:ipg:wpaper:2014-580 is not listed on IDEAS
    21. repec:ipg:wpaper:2014-570 is not listed on IDEAS
    22. Takashi Kamihigashi, 2015. "A Simple No-Bubble Theorem for Deterministic Dynamic Economies," Discussion Paper Series DP2015-24, Research Institute for Economics & Business Administration, Kobe University.
    23. repec:ipg:wpaper:2014-457 is not listed on IDEAS
    24. repec:ipg:wpaper:2014-510 is not listed on IDEAS

    More about this item

    Keywords

    Intertemporal equilibrium; physical capital bubble; efficiency; infinite horizon;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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