This preview shows page 1. Sign up to view the full content.
Unformatted text preview: ECO 475 Homework 9 Jay H. Hong Due: Nov 18, 2009 1 Computing the equilibrium Consider the simple two agent pure exchange economy. There are two individuals ( i = 1 , 2) who live forever and each individual enjoys utility from a sequence of consumption given by E t =0 t ln( c i t ) . Each consumer receives a random endowment of nonstorable consumption goods in each period which depends on the aggregate state of economy at time t , s t { A,B } . The process of random endowments is given by e 1 t = 2 if s t = A if s t = B e 2 t = if s t = A 2 if s t = B The aggregate state of economy is a random variable with Pr( s = A ) = and Pr( s = B ) = 1 (1) Carefully define and characterize an Arrow Debreu equilibrium. (2) Formulate Pareto problem where the planners weight on consumer 1 is . ( Hint: s t is the multiplier for time t and state s constraint.) Using the Negishis method, compute the competitive equilibrium for this economy. Check if your equilibrium coincides the equilibrium you derive in (1).economy....
View
Full
Document
 Fall '07
 Hong
 Utility

Click to edit the document details