Non-Existence of Competitive Equilibria with Dynamically Inconsistent Preferences
This paper shows the robust non existence of competitive equilibria even in a simple three period representative agent economy with dynamically inconsistent preferences. We distinguish between a sophisticated and naive representative agent. Even when underlying preferences are monotone and convex, we show by example that the induced preferences, at given prices, of the sophisticated representative agent over choices in first period markets are both non convex and satiated. Therefore, even allowing for negative prices, the market clearing allocation is not contained in the convex hull of demand. Finally, with a naive representative agent, we show that perfect foresight is incompatible with market clearing and individual optimization at given prices.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: CV4 7AL COVENTRY|
Phone: +44 (0) 2476 523202
Fax: +44 (0) 2476 523032
Web page: http://www2.warwick.ac.uk/fac/soc/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Barro, 1999. "Ramsey Meets Laibson in the Neoclassical Growth Model," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1125-1152.
- Luttmer, Erzo G.J. & Mariotti, Thomas, 2007.
"Efficiency and equilibrium when preferences are time-inconsistent,"
Journal of Economic Theory,
Elsevier, vol. 132(1), pages 493-506, January.
- Erzo G J Luttmer & Thomas Mariotti, 2003. "Efficiency and Equilibrium when Preferences are Time-Inconsistent," STICERD - Theoretical Economics Paper Series 446, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Luttmer, Erzo & Mariotti, Thomas, 2004. "Efficiency and Equilibrium when Preferences are Time-Inconsistent," IDEI Working Papers 335, Institut d'Économie Industrielle (IDEI), Toulouse.
- Erzo G. J. Luttmer & Thomas Mariotti, 2003. "Efficiency and equilibrium when preferences are time-inconsistent," LSE Research Online Documents on Economics 19320, London School of Economics and Political Science, LSE Library.
- Bezalel Peleg & Menahem E. Yaari, 1973. "On the Existence of a Consistent Course of Action when Tastes are Changing," Review of Economic Studies, Oxford University Press, vol. 40(3), pages 391-401.
- P. Herings & Kirsten Rohde, 2006.
"Time-inconsistent preferences in a general equilibrium model,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(3), pages 591-619, November.
- Herings Jean-Jacques & Rohde Kirsten I.M., 2004. "Time-inconsistent Preferences in a General Equilibrium Model," Research Memorandum 016, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Harris, Christopher & Laibson, David, 2001.
"Dynamic Choices of Hyperbolic Consumers,"
Econometric Society, vol. 69(4), pages 935-57, July.
- Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
- R. A. Pollak, 1968. "Consistent Planning," Review of Economic Studies, Oxford University Press, vol. 35(2), pages 201-208.
- HERINGS, P. Jean-Jacques & ROHDE, Kirsten I.M., .
"On the completeness of complete markets,"
CORE Discussion Papers RP
2153, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Murty, K N, 1982. "Theoretical Restrictions on the Parameters of Indirect Addilog Demand Equations-A Comment," Econometrica, Econometric Society, vol. 50(1), pages 225-27, January.
- Caplin, Andrew & Leahy, John, 2006. "The recursive approach to time inconsistency," Journal of Economic Theory, Elsevier, vol. 131(1), pages 134-156, November.
- Erzo Luttmer & Thomas Mariotti, 2006. "Competitive equilibrium when preferences change over time," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(3), pages 679-690, 04.
- David Laibson, 1997.
"Golden Eggs and Hyperbolic Discounting,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 112(2), pages 443-478.
- Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory and Anticipatory Feelings," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 55-79.
- Erzo G. J. Luttmer & Thomas Mariotti, 2003. "Subjective Discounting in an Exchange Economy," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 959-989, October.
- Charles Blackorby & David Nissen & Daniel Primont & R. Robert Russell, 1973. "Consistent Intertemporal Decision Making," Review of Economic Studies, Oxford University Press, vol. 40(2), pages 239-248.
- Steven M. Goldman, 1980. "Consistent Plans," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 533-537.
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, December.
When requesting a correction, please mention this item's handle: RePEc:wrk:warwec:900. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Margaret Nash)
If references are entirely missing, you can add them using this form.