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 |
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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 ; Unawareness 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: | 09 Oct 2019 13:01 |

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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/7445 |