IDEAS home Printed from https://ideas.repec.org/p/sur/surrec/0819.html

Crashing of Efficient Stochastic Bubbles

Author

Listed:
  • Aloisio Araujo

    (IMPA and FGV EPGE)

  • Juan Pablo Gama

    (IMPA)

  • Mario R. Pascoa

    (University of Surrey)

Abstract

Efficiency is not commonly related to the crash of bubbles. However in the presence of wary agents, infinite-lived agents that are worried about distant losses, efficient bubbles may occur and, in a stochastic setting, these bubbles can crash. In this paper we characterize the Arrow-Debreu (AD) price and establish the relationship between the agents' concern about distant losses and the existence of pure charges in the AD price. We show that this pure charge induces efficient bubbles in the positive net-supply assets that complete the markets and that, as we enter some sub-tree, that pure charge may no longer present in the AD price for the sub-economy, implying the crash of the bubble. Finally, we give an example in which there is an efficient bubble with infinitely many crashes.

Suggested Citation

  • Aloisio Araujo & Juan Pablo Gama & Mario R. Pascoa, 2019. "Crashing of Efficient Stochastic Bubbles," School of Economics Discussion Papers 0819, School of Economics, University of Surrey.
    • Handle: RePEc:sur:surrec:0819
    as

    Download full text from publisher

    File URL: https://repec.som.surrey.ac.uk/2019/DP08-19.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pham, Hai Ha & Pham, Ngoc-Sang, 2024. "Effects of wariness on economic growth in overlapping generations models," Journal of Mathematical Economics, Elsevier, vol. 115(C).
    2. Hai Ha Pham & Ngoc-Sang Pham, 2025. "Wariness and Poverty Traps," Papers 2510.14418, arXiv.org.

    More about this item

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sur:surrec:0819. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ioannis Lazopoulos (email available below). General contact details of provider: https://edirc.repec.org/data/desuruk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.