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Markovian Equilibrium in Infinite Horizon Economies with Incomplete Markets and Public Policy

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Author Info
Manjira Datta () (Arizona State University)
Leonard J. Mirman (University of Virginia)
Olivier F. Morand (University of Connecticut)
Kevin L. Reffett () (Arizona State University)

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Abstract

We develop an isotone recursive approach to the problem of existence, computation, and characterization of nonsymmetric locally Lipschitz continuous (and, therefore, Clarke-differentiable) Markovian equilibrium for a class of infinite horizon multiagent competitive equilibrium models with capital, aggregate risk, public policy, externalities, one sector production, and incomplete markets. The class of models we consider is large, and examples have been studied extensively in the applied literature in public economics, macroeconomics, and financial economics. We provide sufficient conditions that distinguish between economies with isotone Lipschitizian Markov equilibrium decision processes (MEDPs) and those that have only locally Lipschitzian (but not necessarily isotone) MEDPs. As our fixed point operators are based upon order continuous and compact non-linear operators, we are able to provide sufficient conditions under which isotone iterative fixed point constructions converge to extremal MEDPs via successive approximation. We develop a first application of a new method for computing MEDPs in a system of Euler inequalities using isotone fixed point theory even when MEDPs are not necessarily isotone. The method is a special case of a more general mixed monotone recursive approach. We show MEDPs are unique only under very restrictive conditions. Finally, we prove monotone comparison theorems in Veinott's strong set order on the space of public policy parameters and distorted production functions.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 05-013/2.

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Date of creation: 27 Jan 2005
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Handle: RePEc:dgr:uvatin:20050013

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Related research
Keywords: Markovian equilibrium; isotone iterative fixed point constructions;

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Find related papers by JEL classification:
C - Mathematical and Quantitative Methods
E - Macroeconomics and Monetary Economics

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Manjira Datta & Leonard Mirman & Kevin Reffett, . "Nonclassical Brock-Mirman Economies," Working Papers 2179544, Department of Economics, W. P. Carey School of Business, Arizona State University. [Downloadable!]
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