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The perfect foresights' assumption revisited : (I) the existence of equilibrium with multiple price expectations

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    Our earlier papers [2,3,4,5,6] had extended to asymmetric information the classical existence theorems of general equilibrium theory [1,7,10], under the standard assumption that agents had perfect foresights, that is they knew, ex ante, which price would prevail on each spot market. Common observation suggests, however that agents more often trade with an unprecise knowledge of future prices. We now let agents anticipate, in each random state, a set of plausible spot prices and introduce a mild condition of consistent anticipations and a related concept of "correct foresights equilibrium" along which the "true" spot prices are, ex ante, in all agents' anticipations. We prove, in a finite economy with standard assumptions, that existence of such equilibrium is still characterized by the no-arbitrage condition of finance. This result, which extends our earlier theorems, shows that private information and uncertain anticipations would not affect existence but the value of equilibrium prices and allocations.

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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2007/B07015.pdf
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    Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number b07015.

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    Length: 26 pages
    Date of creation: Apr 2007
    Date of revision:
    Handle: RePEc:mse:cesdoc:b07015
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