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Non-Existence of Competitive Equilibria with Dynamically Inconsistent Preferences

Tommaso Gabrieli () and Sayantan Ghosal

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

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, 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.

Keywords: dynamically inconsistent preferences; competitive equilibrium; existence; satiation; non convexity (search for similar items in EconPapers)
JEL-codes: D50 D91 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-mac and nep-mic
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Related works:
Journal Article: Non-existence of competitive equilibria with dynamically inconsistent preferences (2013) Downloads
Working Paper: Non-Existence of Competitive Equilibria with Dynamically Inconsistent Preferences (2009) Downloads
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