Maximum Expected Utility over Savage Acts with a Set of Priors

Ramon Casadesus-Masanell (), Peter Klibanoff and Emre Ozdenoren

No 1218, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: When do dynamic nonconvexities at the disaggregate level translate into dynamic nonconvexities at the aggregate level? We address this question in a framework where the production of differentiated intermediate inputs is subject to dynamic nonconvexities and show that the answer depends on the degree of Hicks-Allen complementarity (substitutability) between differentiated inputs. In our simplest model, a generalization of Judd (1985) and Grossman and Helpman (1991) among many others, there are dynamic nonconvexities at the aggregate level if and only differentiated inputs are Hicks-Allen complements. We also compare dynamic equilibrium and optimal allocations in the presence of aggregate dynamic nonconvexities due to Hicks-Allen complementarities between differentiated inputs.

Date: 1998-07
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