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A Theory of Continuum Economies with Independent Shocks and Matchings


  • Karavaev, Andrei


Numerous economic models employ a continuum of negligible agents with a sequence of idiosyncratic shocks and random matchings. Several attempts have been made to build a rigorous mathematical justification for such models, but these attempts have left many questions unanswered. In this paper, we develop a discrete time framework in which the major, desirable properties of idiosyncratic shocks and random matchings hold. The agents live on a probability space, and the probability distribution for each agent is naturally replaced by the population distribution. The novelty of this approach is in the assumption of unknown identity. Each agent believes that initially he was randomly and uniformly placed on the agent space, i.e., the agent's identity (the exact location on the agent space) is unknown to the agent.

Suggested Citation

  • Karavaev, Andrei, 2008. "A Theory of Continuum Economies with Independent Shocks and Matchings," MPRA Paper 17113, University Library of Munich, Germany, revised 02 Sep 2009.
  • Handle: RePEc:pra:mprapa:17113

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    More about this item


    random matching; idiosyncratic shocks; the Law of Large Numbers; aggregate uncertainty; mixing;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E00 - Macroeconomics and Monetary Economics - - General - - - General


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