Fratini, Saverio M. and Levrero, Enrico Sergio (2009): A remark on the supposed equivalence between complete markets and perfect foresight hypothesis.
Download (119kB) | Preview
We consider a sequential equilibrium model over two periods, during the first of which agents have perfect information and their expectations are formed as if there were complete future markets. We show that, in the second period, equilibrium prices may well be different from those expected, without any unexpected change having occurred. This result highlights a lack of correspondence between the perfect foresight hypothesis and that of complete markets.
|Item Type:||MPRA Paper|
|Original Title:||A remark on the supposed equivalence between complete markets and perfect foresight hypothesis|
|Keywords:||Arrow-Debreu equilibrium, Complete markets, Sequential equilibrium, Perfect foresight, Indeterminacy|
|Subjects:||D - Microeconomics > D4 - Market Structure, Pricing, and Design > D46 - Value Theory
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations
D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D51 - Exchange and Production Economies
|Depositing User:||Saverio M. Fratini|
|Date Deposited:||01. Jul 2009 09:13|
|Last Modified:||15. Feb 2013 20:34|
Arrow, K.J. (1963) “Utility and Expectation in Economic Behavior”, in S. Koch (Ed.) Psychology: a Study of a Science, New York: McGraw-Hill.
Bliss, C.J. (1975) Capital Theory and the Distribution of Income, Amsterdam/New York: North-Holland/Elsevier.
Debreu, G. (1959) Theory of Value, New York: Wiley.
Fratini, S.M. (2008) “Economic generality versus mathematical genericity: activity level indeterminacy and the index theorem in constant returns production economies”, Metroeconomica, vol. 59, pp. 266-275.
Garegnani, P. (1976) “On a Change in the Notion of Equilibrium in Recent Work on Value and Distribution”, in M. Brown, K. Sato, P. Zaremka (Eds.) Essays in Modern Capital Theory, Amsterdam: North-Holland.
Grandmont, J.M. (1977) “Temporary General Equilibrium Theory”, Econometrica, vol. 45, pp. 535-72.
Green, J.R. (1973) “Temporary General Equilibrium in a Sequential Trading Model with Spot and Future Transactions”, Econometrica, vol. 41, pp.1103-23.
Hicks, J.R. (1939) Value and Capital: An Inquiry into Some Fundamental Principles of Economic Theory, Oxford: Clarendon Press.
Lucas, R. (1988) “On the Mechanics of Economic Development”, Journal of Monetary Economics, vol. 22, pp. 3-42.
Mandler, M. (1995) “Sequential indeterminacy in production economies”, Journal of Economic Theory, vol. 66, pp. 406-436.
Mandler, M. (1999) “Sraffian Indeterminacy in General Equilibrium”, Review of Economic Studies, vol. 66, pp. 693-711
Mas-Colell, A. (1975) “On the Continuity of Equilibrium Prices in Constant Returns Production Economies”, Journal of Mathematical Economics, vol. 2, pp. 21-33.
Mas-Colell, A.; Whinston, M.D. and Green, J.R. (1995) Microeconomic Theory, New York: Oxford University Press.
Radner, R. (1968) “Competitive Equilibrium Under Uncertainty”, Econometrica, vol. 36, pp. 31-58.
Radner, R. (1972) “Existence of Equilibrium of Plans, Prices and Price Expectations in a Sequence of Markets”, Econometrica, vol. 40, pp. 289-303.