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Welfare Theorems with Limited Commitment: Superlinear Pricing

Author

Listed:
  • V. Filipe Martins-Da-Rocha

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique, EESP - Sao Paulo School of Economics - FGV - Fundacao Getulio Vargas [Rio de Janeiro])

  • Antonio Schwanke

    (EESP - Sao Paulo School of Economics - FGV - Fundacao Getulio Vargas [Rio de Janeiro])

Abstract

In dynamic economic models characterized by limited commitment, participation constraints typically bind, resulting in equilibrium interest rates that may fall below growth rates. This undermines the validity of the Second Welfare Theorem under linear pricing conditions. Our research demonstrates that the First and Second Welfare Theorems can be upheld when introducing superlinear price functionals. The study unveils a novel application of nonlinear pricing in financially constrained settings and reveals an intriguing link with the ε-Nash equilibrium concept in the context of repeated games.

Suggested Citation

  • V. Filipe Martins-Da-Rocha & Antonio Schwanke, 2023. "Welfare Theorems with Limited Commitment: Superlinear Pricing," Working Papers hal-04370220, HAL.
    • Handle: RePEc:hal:wpaper:hal-04370220
    Note: View the original document on HAL open archive server: https://hal.science/hal-04370220
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