Unawareness and Bankruptcy: A General Equilibrium Model

Posted: 4 Oct 1998

See all articles by Salvatore Modica

Salvatore Modica

Universita di Palermo

Aldo Rustichini

University of Minnesota - Twin Cities - Department of Economics

Jean-Marc Tallon

Paris School of Economics

Abstract

We present a consistent pure-exchange general equilibrium model where agents may not be able to foresee all possible future contingencies. In this context, even with nominal assets and complete asset markets, an equilibrium may not exist without appropriate assumptions. Specific examples are provided.

An existence result is proved under the main assumption that there are sufficiently many states that all the agents foresee. An intrinsic feature of the model is bankruptcy, which agents may involuntarily experience in the unforeseen states.

JEL Classification: D4, D52, D81, D84

Suggested Citation

Modica, Salvatore and Rustichini, Aldo and Tallon, Jean-Marc, Unawareness and Bankruptcy: A General Equilibrium Model. Economic Theory, Vol. 12, Iss. 2, August 19, 1998. Available at SSRN: https://ssrn.com/abstract=133929

Salvatore Modica

Universita di Palermo ( email )

IMRO
I-98121 Palermo
Italy
(091) 6626 232 (Phone)
(091) 42 67 81 (Fax)

Aldo Rustichini (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

Jean-Marc Tallon

Paris School of Economics ( email )

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