General Equilibrium, Wariness and Bubbles

45 Pages Posted: 30 Sep 2013

See all articles by Aloisio Araujo

Aloisio Araujo

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Rodrigo Novinski

Ibmec, Rio de Janeiro

Mario Rui Páscoa

New University of Lisbon - Faculdade de Economia

Date Written: May 24, 2011

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, Bewleyʼs (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 Bewleyʼs (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.

Keywords: General equilibrium, Wariness, Bubbles, Ambiguity, Transversality condition, Pure charges

JEL Classification: D52, D53, G12

Suggested Citation

Araujo, Aloisio and Novinski, Rodrigo and Rui Páscoa, Mario, General Equilibrium, Wariness and Bubbles (May 24, 2011). Journal of Economic Theory, Vol. 146, No. 3, 2011, Available at SSRN: https://ssrn.com/abstract=2330442

Aloisio Araujo (Contact Author)

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

Rodrigo Novinski

Ibmec, Rio de Janeiro ( email )

Av. Presidente Wilson, 118
Av.Amando Lombardi, 940
Rio de Janeiro, RI RJ 20030020
Brazil

Mario Rui Páscoa

New University of Lisbon - Faculdade de Economia ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal

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