Competitive Equilibria in Incomplete Markets with Risk Loving Preferences

P.J.J. Herings, Yang Zhan

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Abstract

We study the existence of competitive equilibria in the presence of risk-loving preferences and incomplete markets. A crucial role is played by the initial endowments of an asset, the maximal possible supply of that asset by a consumer. We provide a lower bound on the aggregate initial endowments of an asset of the risk averse agents that is succient for competitive equilibria to exist. We apply our results to special cases where wealth is transferred to the future by means of a riskless bond and cases where all risk averters have constant relative risk aversion utility functions. We also provide some evidence that market incompleteness helps in ensuring equilibrium existence.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages37
Volume2022-026
Publication statusPublished - 20 Sept 2022

Publication series

NameCentER Discussion Papers
Volume2022-026

Keywords

  • Risk lovers
  • competitive equilibrium
  • market incompleteness
  • equilibrium existence

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