Efficiency and Representation of a General Equilibrium with Time-Dependent Preferences
University of Oxford - Department of Economics
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.
Number of Pages in PDF File: 32
Keywords: time-dependent preferences, general equilibrium, First Fundamental Welfare Theorem, social welfare, hyperbolic discounting
JEL Classification: D51, D60, D91
Date posted: January 27, 2013 ; Last revised: November 26, 2013