General equilibrium, wariness and efficient bubbles

Aloisio Araujo, Rodrigo Novinski, Mário R. Páscoa

Research output: Contribution to journalArticle

14 Citations (Scopus)

Abstract

Wary consumers overlook gains but not losses in remote sets of dates or states. As preferences are upper but not lower Mackey semi-continuous, Bewley's (1972) [4] result on existence of equilibrium whose prices are not necessarily countably additive holds. Wariness is related to lack of myopia and to ambiguity aversion (and, therefore, to Bewley's (1986) [6] work on Knightian uncertainty). Wary infinite lived agents have weaker transversality conditions allowing them to be creditors at infinity and for bubbles to occur in positive net supply assets completing the markets. There are efficient allocations that can only be implemented with asset bubbles.

Original languageEnglish
Pages (from-to)785-811
Number of pages27
JournalJournal of Economic Theory
Volume146
Issue number3
DOIs
Publication statusPublished - May 2011

Keywords

  • Ambiguity
  • Bubbles
  • General equilibrium
  • Pure charges
  • Transversality condition
  • Wariness

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