Efficiency and Representation of a General Equilibrium with Time-Dependent Preferences
32 Pages Posted: 27 Jan 2013 Last revised: 26 Nov 2013
Date Written: November 26, 2013
This paper focuses on the welfare properties of equilibria in exchange economies with time-dependent preferences. We introduce a notion of recursive efficiency and show that any quilibrium allocation is efficient in the sense defined. Therefore, we present a version of the First Fundamental Welfare Theorem for this class of economies. Moreover, we present a social welfare function with maximisers that coincide with recursively efficient allocations, and prove that every equilibrium can be represented by a solution to a social welfare optimisation problem.
Keywords: time-dependent preferences, general equilibrium, First Fundamental Welfare Theorem, social welfare, hyperbolic discounting
JEL Classification: D51, D60, D91
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