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Prudent Expectations Equilibrium in Economies with Uncertain Delivery

  • Joao Correia-da-Silva

    ()

    (CEMPRE, Faculdade de Economia, Universidade do Porto)

  • Carlos Hervés-Beloso

    ()

    (RGEA. Facultad de Económicas. Universidade de Vigo.)

In an economy with private information, we introduce the notion of objects of choice as lists of bundles out of which the market selects one for delivery. This leads to an extension of the model of Arrow-Debreu that is used to study ex-ante trade with private state verification. The model does not require agents to have complete information about the space of states, being suited to a context of Knightian uncertainty. Under the assumption that agents are prudent, equilibrium is characterized by the fact that agents consume bundles with the same utility in states that they do not distinguish.

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Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 216.

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Length: 34 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:por:fepwps:216
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  1. Holmstrom, Bengt & Myerson, Roger B, 1983. "Efficient and Durable Decision Rules with Incomplete Information," Econometrica, Econometric Society, vol. 51(6), pages 1799-819, November.
  2. Edward C Prescott & Robert M Townsend, 2010. "Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard," Levine's Working Paper Archive 2069, David K. Levine.
  3. Angeloni, Laura & Martins-da-Rocha, Victor Filipe, 2007. "Contract enforcement and incentive compatibility in large economies with differential information: the role of exact feasibility," Economics Working Papers (Ensaios Economicos da EPGE) 647, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  4. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  5. Wassim Daher & V. Filipe Martins-Da-Rocha & Yiannis Vailakis, 2005. "Asset market equilibrium with short-selling and differential information," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00173787, HAL.
  6. Joao Correia-da-Silva & Carlos Hervés-Beloso, 2006. "Rational Expectations Equilibrium in Economies with Uncertain Delivery," FEP Working Papers 206, Universidade do Porto, Faculdade de Economia do Porto.
  7. Harsanyi, John C., 1994. "Games with Incomplete Information," Nobel Prize in Economics documents 1994-1, Nobel Prize Committee.
  8. Yannelis, Nicholas C, 1991. "The Core of an Economy with Differential Information," Economic Theory, Springer, vol. 1(2), pages 183-97, April.
  9. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  10. Hildenbrand, W & Mertens, J F, 1972. "Upper Hemi-Continuity of the Equilibrium-Set Correspondence for Pure Exchange Economies," Econometrica, Econometric Society, vol. 40(1), pages 99-108, January.
  11. Repullo, Rafael, 1985. "On the non-existence of equilibrium with differential information," Economics Letters, Elsevier, vol. 18(2-3), pages 105-108.
  12. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2002. "A smooth model of decision making under ambiguity," ICER Working Papers - Applied Mathematics Series 11-2003, ICER - International Centre for Economic Research, revised Apr 2003.
  13. Radner, Roy, 1979. "Rational Expectations Equilibrium: Generic Existence and the Information Revealed by Prices," Econometrica, Econometric Society, vol. 47(3), pages 655-78, May.
  14. Francoise Forges & Enrico Minelli & Rajiv Vohra, 2000. "Incentives and the Core of an Exchange Economy: A Survey," Working Papers 2000-22, Brown University, Department of Economics.
  15. Dionysius Glycopantis & Allan Muir & Nicholas C. Yannelis, 2003. "On extensive form implementation of contracts in differential information economies," Economic Theory, Springer, vol. 21(2), pages 495-526, 03.
  16. Postlewaite, Andrew & Schmeidler, David, 1986. "Implementation in differential information economies," Journal of Economic Theory, Elsevier, vol. 39(1), pages 14-33, June.
  17. Guangsug Hahn & Nicholas C. Yannelis, 1997. "Efficiency and incentive compatibility in differential information economies," Economic Theory, Springer, vol. 10(3), pages 383-411.
  18. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  19. Wilson, Robert B, 1978. "Information, Efficiency, and the Core of an Economy," Econometrica, Econometric Society, vol. 46(4), pages 807-16, July.
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