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80
A Central Planning Approach to Dynamic Incomplete Markets. Working Paper
, 2002
"... We show that a central planner with two selves, or two “pseudo welfare functions”, are sufficient to deliver the market equilibrium that prevails among any (finite) number of heterogeneous individual agents acting competitively in an incomplete financial market. Furthermore, we are able to exhibit a ..."
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We show that a central planner with two selves, or two “pseudo welfare functions”, are sufficient to deliver the market equilibrium that prevails among any (finite) number of heterogeneous individual agents acting competitively in an incomplete financial market. Furthermore, we are able to exhibit a recursive formulation of the twocentral planner problem. In that formulation, every aspect of the economy can be derived one step at a time, by a process of backward induction as in dynamic programming. Dynamic asset pricing increasingly considers models with incomplete markets and heterogeneity in an attempt to improve over the empirical performance of benchmark completemarket representativeagent models. Numerous authors have pointed out the difficulties faced when solving these models. 1 In this paper, we aim to find a technique for computing an equilibrium in an incomplete financial market, that is less onerous than the fixedpoint tâtonnement process. The tâtonnement process presents the major drawback that a stochastic process for securities prices must be postulated ab initio to start the procedure of obtaining optimal portfolios. The trialanderror procedure would wander in a vast space of stochastic processes. It is a hopeless undertaking. Direct calculation of equilibrium makes sense only in special cases in which the equilibrium has some properties that are known apriori. We are grateful to Domenico Cuoco, to seminar participants at HEC, University of Amsterdam,
Learning competitive equilibrium
, 2008
"... We consider a pure exchange economy repeated from a fixed endowment for an indefinite number of periods and posit a learning rule which directs convergence to competitive equilibrium. In each period trade converges to an allocation in the contract set, where agents interpret the current (common) nor ..."
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We consider a pure exchange economy repeated from a fixed endowment for an indefinite number of periods and posit a learning rule which directs convergence to competitive equilibrium. In each period trade converges to an allocation in the contract set, where agents interpret the current (common) normalized utility gradient as a vector of prices to determine the implied wealth redistribution relative to their endowments. Agents who are less wealthy at the new allocation are designated subsidizers, and demand to provide smaller subsidies in subsequent periods of economic activity. Our model is a globally stable alternative to Walras’ tâtonnement.
Computation of Equilibria in OLG Models with Many Heterogeneous Households
, 2007
"... This paper develops a decomposition algorithm by which a market economy with many households may be solved through the computation of equilibria for a sequence of representative agent economies. The paper examines local and global convergence properties of the sequential recalibration (SR) algorith ..."
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This paper develops a decomposition algorithm by which a market economy with many households may be solved through the computation of equilibria for a sequence of representative agent economies. The paper examines local and global convergence properties of the sequential recalibration (SR) algorithm. SR is then demonstrated to efficiently solve AuerbachKotlikoff OLG models with a large number of heterogeneous households. We approximate equilibria in OLG models by solving a sequence of related Ramsey optimal growth problems. This approach can provide improvements in both efficiency and robustness as compared with simultaneous solution methods.
On the existence, efficiency and bubbles of a ramsey equilibrium with endogenous labor supply and borrowing constraints., CES, Working paper
, 2011
"... of Ramsey equilibrium with borrowing constraints ∗ ..."
On Unbounded Growth with Heterogenous Consumers
, 2006
"... This paper studies unbounded growth with infinitehorizon consumers whose discount factors and instant utility functions are not assumed to be identical. The Negishitype planner becomes nonhomogenous and as a consequence, different consumer types may end up holding all wealth in the far future for ..."
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This paper studies unbounded growth with infinitehorizon consumers whose discount factors and instant utility functions are not assumed to be identical. The Negishitype planner becomes nonhomogenous and as a consequence, different consumer types may end up holding all wealth in the far future for different initial distributions of income. The main technical contribution is a turnpike theorem which generalizes the global stability results of Kaganovich (1998) and Jensen (2003).
Pricing Infinite Horizon Programs *
"... This paper continues the earlier studies [ 17, 181 whose object was to develop an abstract framework for the analysis of problems of resource allocation in continuous time over an infinite horizon. These papers gave conditions on the preferences and technology sufficient to guarantee the ..."
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This paper continues the earlier studies [ 17, 181 whose object was to develop an abstract framework for the analysis of problems of resource allocation in continuous time over an infinite horizon. These papers gave conditions on the preferences and technology sufficient to guarantee the
Social Heterogeneity and Wasteful Lobbying
, 1993
"... Using a general equilibrium model with endogenous policy, we explore how heterogeneity affects wasteful lobbying by sectoral interest groups. With the help of a simulation approach, we first investigate the impact of information heterogeneity on how lobbies react to a shift from a soft to a strict g ..."
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Using a general equilibrium model with endogenous policy, we explore how heterogeneity affects wasteful lobbying by sectoral interest groups. With the help of a simulation approach, we first investigate the impact of information heterogeneity on how lobbies react to a shift from a soft to a strict government budget constraint. Next, we examine how lobbying is influenced by heterogenous perception of the general equilibrium implications of lobbying effort. Finally, we explore the consequences of heterogenous specialization in households ’ asset portfolios. We conclude that social heterogeneity in information, perceptions, and portfolio compositions increases incentives to lobby.
Computing Equilibrium Prices in Exchange Economies with Tax Distortions
"... We consider the computation of equilibrium prices in market settings where purchases of goods are subject to taxation. While this scenario is the standard one in applied computational work, so far it has not been an object of study in theoretical computer science. Taxes introduce significant distort ..."
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We consider the computation of equilibrium prices in market settings where purchases of goods are subject to taxation. While this scenario is the standard one in applied computational work, so far it has not been an object of study in theoretical computer science. Taxes introduce significant distortions: equilibria are no longer Pareto optimal, sufficient conditions for uniqueness do not continue to guarantee it, existence itself must be revisited. We analyze the effects of these distortions on scenarios which, in the absence of taxes, admit polynomial time algorithms, and prove a number of results: • For Fisher’s model with homothetic preferences: if consumers are subject to a uniform tax regime, the model loses the representative consumer and becomes prone to multiple disconnected equilibria; however we show that the distortion has a structure which leads to two (as opposed to one) representative consumers. We take advantage of this property to develop polynomial time algorithms, in spite of the presence of multiple disconnected equilibria. • To obtain the result above, we develop a technique to estimate the sensitivity of Fisher’s
Utility Theories in Cooperative Games
, 1996
"... Utility theories for the denitions of cooperative games and associated solution concepts are discussed. A game with side payments needs the assumptions of transferable utility and side payments. We discuss the axioms for the transferable utility assumption and also the role of side payments for vari ..."
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Utility theories for the denitions of cooperative games and associated solution concepts are discussed. A game with side payments needs the assumptions of transferable utility and side payments. We discuss the axioms for the transferable utility assumption and also the role of side payments for various solution concepts. We also discuss games without side payments, which do not require the assumptions of transferable utility and side payments. We see how some solution concepts depend upon these assumptions.
A Closed System of Production Possibility and Social Welfare
, 2006
"... We offer a closed system production possibility and social welfare system that can be modeled using virtually any available software package. It has the attribute that social welfare is not independent of production possibilities. The closure is made using the famous result by Negishi (1960) for a p ..."
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We offer a closed system production possibility and social welfare system that can be modeled using virtually any available software package. It has the attribute that social welfare is not independent of production possibilities. The closure is made using the famous result by Negishi (1960) for a purely competitive economy. The goal is to help students to understand the interaction, through experimentation, between production and social choice in a competitive economy. 1