Karavaev, Andrei (2008): A Theory of Continuum Economies with Idiosyncratic Shocks and Random Matchings.
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Many economic models use a continuum of negligible agents to avoid considering one person's effect on aggregate characteristics of the economy. Along with a continuum of agents, these models often incorporate a sequence of independent shocks and random matchings. Despite frequent use of such models, there are still unsolved questions about their mathematical justification. In this paper we construct a discrete time framework, in which major desirable properties of idiosyncratic shocks and random matchings hold. In this framework the agent space constitutes a probability space, and the probability distribution for each agent is replaced by the population distribution. Unlike previous authors, we question the assumption of known identity - the location on the agent space. We assume that the agents only know their previous history - what had happened to them before, - but not their identity. The construction justifies the use of numerous dynamic models of idiosyncratic shocks and random matchings.
|Item Type:||MPRA Paper|
|Original Title:||A Theory of Continuum Economies with Idiosyncratic Shocks and Random Matchings|
|Keywords:||random matching; idiosyncratic shocks; the Law of Large Numbers; aggregate uncertainty; mixing|
|Subjects:||C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory; Matching Theory
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
E - Macroeconomics and Monetary Economics > E0 - General > E00 - General
|Depositing User:||Andrei Karavaev|
|Date Deposited:||05. Mar 2008 07:53|
|Last Modified:||17. Feb 2013 23:42|
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