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: |
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.:
- Erzo Luttmer & Thomas Mariotti, 2006. "Competitive equilibrium when preferences change over time," Economic Theory, Springer, vol. 27(3), pages 679-690, 04.
- Steven M. Goldman, 1980. "Consistent Plans," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 533-537.
- 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 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," LSE Research Online Documents on Economics 19320, London School of Economics and Political Science, LSE Library.
- Luttmer, Erzo & Mariotti, Thomas, 2004. "Efficiency and Equilibrium when Preferences are Time-Inconsistent," IDEI Working Papers 335, Institut d'Économie Industrielle (IDEI), Toulouse.
- 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.
- P. Herings & Kirsten Rohde, 2008.
"On the completeness of complete markets,"
Springer, vol. 37(2), pages 171-201, November.
- Herings P. Jean-Jacques & Rohde Kirsten I.M., 2004. "On the Completeness of Complete Markets," Research Memorandum 053, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- 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).
- Herings Jean-Jacques & Rohde Kirsten I.M., 2004.
"Time-inconsistent Preferences in a General Equilibrium Model,"
016, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- P. Herings & Kirsten Rohde, 2006. "Time-inconsistent preferences in a general equilibrium model," Economic Theory, Springer, vol. 29(3), pages 591-619, November.
- repec:tpr:qjecon:v:112:y:1997:i:2:p:443-77 is not listed on IDEAS
- Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
- 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.
- 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.
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, July.
- repec:oup:qjecon:v:112:y:1997:i:2:p:443-77 is not listed on IDEAS
- 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.
- 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.
- Caplin, Andrew & Leahy, John, 2006. "The recursive approach to time inconsistency," Journal of Economic Theory, Elsevier, vol. 131(1), pages 134-156, November.
- 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.
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: (Helen Neal)
If references are entirely missing, you can add them using this form.