Karavaev, Andrei (2008): A Theory of Continuum Economies with Idiosyncratic Shocks and Random Matchings.

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Abstract
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 
Language:  English 
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 
Item ID:  7445 
Depositing User:  Andrei Karavaev 
Date Deposited:  05. Mar 2008 07:53 
Last Modified:  17. Feb 2013 23:42 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/7445 