General Equilibrium, Wariness and Bubbles
45 Pages Posted: 30 Sep 2013
Date Written: May 24, 2011
Wary consumers overlook gains but not losses in remote sets of dates or states. As preferences are upper but not lower, Mackey semi-continuous, Bewleyʼs (1972)  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 Bewleyʼs (1986)  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.
Keywords: General equilibrium, Wariness, Bubbles, Ambiguity, Transversality condition, Pure charges
JEL Classification: D52, D53, G12
Suggested Citation: Suggested Citation