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Unawareness and bankruptcy: A general equilibrium model

Salvatore Modica (), Jean-Marc Tallon () and Aldo Rustichini

Economic Theory, 1998, vol. 12, issue 2, 259-292

Abstract: We present a consistent pure-exchange general equilibrium model where agents may not be able to foresee all possible future contingencies. In this context, even with nominal assets and complete asset markets, an equilibrium may not exist without appropriate assumptions. Specific examples are provided. An existence result is proved under the main assumption that there are sufficiently many states that all the agents foresee. An intrinsic feature of the model is bankruptcy, which agents may involuntarily experience in the unforeseen states.

JEL-codes: D4 D52 D81 D84 (search for similar items in EconPapers)
Date: 1998-08-19
Note: Received: April 23, 1997; revised version: May 19, 1997
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