pred-d - Paul Milgrom and Nancy Stokey Journal of Economic...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Paul Milgrom and Nancy Stokey Journal of Economic Thoery,1982 Motivation Model I Model II There are L commodities in each state of the world. Assume consumption set is R L + . Each trader i is described by: his endowment, e i : ϴ R L + his utility function, U i : ϴ x R L + R his (subjective) prior beliefs about ω, p i (.) and his (prior) informational partition, P i Utility Assumed that U i ( ϴ , .): R L + R is increasing for all i, ϴ . If U i ( ϴ , .) is concave for all ϴ , trader i is said to be weakly risk- averse. If strictly concave, then strictly risk-averse. Model III Trades A trade , t = (t 1 , …, t n ) is a function from Ω to R nL , where t i (ω) describes trader i’s net trade of physical commodities in state ω. If a trade can be described as a function from ϴ to R nL , it is called a ϴ-contingent trade . E.g. a bet: I’ll bet you $100 it doesn’t rain tomorrow. A trade is feasible if: Beliefs Assume p i (ω) > 0 for all ω and every i. Let E i [.] denote i’s expectation under p i . Say that beliefs are concordant if: Theorem I The idea of the proof: traders are at an ex ante pareto-optimal allocation. Thus, in order for a trader to wish to trade, he must allocation....
View Full Document

This document was uploaded on 01/05/2012.

Page1 / 14

pred-d - Paul Milgrom and Nancy Stokey Journal of Economic...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online