Non-existence of competitive equilibria with dynamically inconsistent preferences

Gabrieli, T. and Ghosal, S. (2013) Non-existence of competitive equilibria with dynamically inconsistent preferences. Economic Theory, 52 (1). pp. 299-313. ISSN 1432-0479 doi: 10.1007/s00199-011-0623-9

Abstract/Summary

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, at given prices, we show by example that the induced preference of the sophisticated representative agent over choices in first-period markets is both non-convex and satiated. 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.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/28051
Item Type	Article
Refereed	Yes
Divisions	Henley Business School > Real Estate and Planning
Publisher	Springer
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