Non-existence of competitive equilibria with dynamically inconsistent preferences

Tommaso Gabrieli and Sayantan Ghosal

Economic Theory, 2013, vol. 52, issue 1, 299-313

Abstract: 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. Copyright Springer-Verlag 2013

Keywords: Dynamically inconsistent preferences; Competitive equilibrium; Existence; Satiation; Non-convexity; D50; D91 (search for similar items in EconPapers)
Date: 2013
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Related works:
Working Paper: Non-Existence of Competitive Equilibria with Dynamically Inconsistent Preferences (2009)
Working Paper: Non-Existence of Competitive Equilibria with Dynamically Inconsistent Preferences (2009)
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DOI: 10.1007/s00199-011-0623-9

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