Economic Theory

, Volume 52, Issue 1, pp 299–313 | Cite as

Non-existence of competitive equilibria with dynamically inconsistent preferences

  • Tommaso Gabrieli
  • Sayantan Ghosal
Research Article


This paper shows the robust non-existence of competitive equilibria even in a simple three period representative agent economy with dynamically inconsistent preferences. We distinguish between a sophisticated and naive representative agent. Even when underlying preferences are monotone and convex, at given prices, we show by example that the induced preference of the sophisticated representative agent over choices in first-period markets is both non-convex and satiated. Even allowing for negative prices, the market-clearing allocation is not contained in the convex hull of demand. Finally, with a naive representative agent, we show that perfect foresight is incompatible with market clearing and individual optimization at given prices.


Dynamically inconsistent preferences Competitive equilibrium Existence Satiation Non-convexity 

JEL Classification

D50 D91 


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Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.Real Estate and Planning Henley Business SchoolUniversity of ReadingReadingUK
  2. 2.Department of EconomicsUniversity of WarwickCoventryUK

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