Abstract
We reconsider the allocational invariance of equilibria to different formulations of market completeness. We identify the so-far neglected assumption of sophisticated behavior as being crucial. First, the Arrow-Debreu setting is considered, where markets do not reopen in the future. Second, sequentially complete markets are analyzed, where goods on the spot markets and all contingent one-period ahead commodities can be traded in every state. Finally, complete markets are analyzed, where all possible contingent commodities can be traded at every state. Preferences may be time-consistent or time-inconsistent. A distinction is made between naive and sophisticated behavior.
Original language | English |
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Pages (from-to) | 171-201 |
Number of pages | 31 |
Journal | Economic Theory |
Volume | 37 |
Issue number | 2 |
DOIs | |
Publication status | Published - Nov 2008 |
Externally published | Yes |
Keywords
- time-inconsistency
- competitive equilibrium
- market completeness
- allocational equivalence
- EXPECTATIONS
- PREFERENCES
- EQUILIBRIUM
- PLANS