Temporary competitive equilibrium and the existence of self-fulfilling expectations

TY - JOUR

T1 - Temporary competitive equilibrium and the existence of self-fulfilling expectations

AU - Jordan, J. S.

N1 - Funding Information: Recent studies of the temporary competitive equilibrium have focused attention on the way in which economic agents anticipate future prices. The existence of a temporary competitive equilibrium under uncertainty was first proved by Stigum [8] in the context of a model which included stock markets and markets for persona1a nd entrepreneurial debt. Stigum assumed that each agent’s subjective probability distribution over future events conditional on current and past observations varied continuously with current observations and that each agent attached subjective probability one to the event in which all future prices are positive [8, pp. 557-5581. These two assumptions have been used in all subsequent studies. In [2], Grandmont introduced the topology of weak convergence of probability measuresa s a tool for studying agents’ expectations and stated the continuity assumption in terms of this topology. Since most authors have assumedp references to be strictly monotone, the assumption of the certainty of positive future prices has generally been justified on the grounds that future equilibrium prices must be positive. However, if conditional subjective probabilities are defined at nonpositive current prices then the continuity assumption combined with the assumption that future prices are positive with subjective probability one implies that one can find a current price sufficiently low so that each agent expects next period’s price to be higher with probability near one. If next period’s equilibrium price is positive but lower than the current * This paper contains material from my doctoral dissertation [5] submitted to North-western University. The help of the Chairman, Professor John 0. Ledyard, and the other members of my committee, Professors Stanley Reiter and Bernt P. Stigum is gratefully acknowledged. This research was supported by NSF Grant GS31346X and the typing of this draft was supported by NSF Grant SOC74-19469. Any errors are my own.

PY - 1976/6

Y1 - 1976/6

UR - http://www.scopus.com/inward/record.url?scp=49549130983&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=49549130983&partnerID=8YFLogxK

U2 - 10.1016/0022-0531(76)90039-9

DO - 10.1016/0022-0531(76)90039-9

M3 - Article

AN - SCOPUS:49549130983

SN - 0022-0531

VL - 12

SP - 455

EP - 471

JO - Journal of Economic Theory

JF - Journal of Economic Theory

IS - 3

ER -