T. J. KEHOE
of the following three questions.
Consider an economy with two infinitely lived consumers.
There is one good in each period.
, has the utility function
, is the common discount factor.
Each of the consumers is endowed with a
sequence of goods:
There is no production or storage.
Describe an Arrow-Debreu market structure for this economy, explaining when markets are
open, who trades with whom, and so on. Define an Arrow-Debreu equilibrium for this economy.
Describe a sequential market structures for this economy, explaining when markets are open,
who trades with whom, and so on. Define a sequential markets equilibrium for this economy.
Carefully state a proposition or propositions that establish the essential equivalence of the
equilibrium concept in part a with that in part b.
Be sure to specify the relationships between the
objects in the Arrow-Debreu equilibrium and those in the sequential markets equilibrium.
Calculate the Arrow-Debreu equilibrium for this economy.
(This equilibrium is unique, but
you do not have to prove this fact.)