TY - JOUR
T1 - Rational expectations equilibria of economies with local interactions
AU - Bisin, Alberto
AU - Horst, Ulrich
AU - Özgür, Onur
N1 - Funding Information:
This research was supported by the German Academic Exchange Service and the C.V. Starr Center for Applied Economics at New York University. It was carried out while the second author visited Princeton University. We wish to thank José Scheinkman and Jess Ben-habib for support and valuable comments. We are grateful also to Aloisio Araujo, Michele Boldrin, David Levine, Manuel Santos, Ennio Stacchetti, Fernando Vega-Redondo, to the seminar participants at Impa, Universitat Di Tella, Leuven, Valencia, Venice, the SED Meetings in New York, the Workshop on Modelling Social Interactions at Paris IX, the VIIIth Workshop on Economies with Heterogeneous Interacting Agents in Kiel, and to the Associate Editor and three anonymous referees for their comments.
PY - 2006/3
Y1 - 2006/3
N2 - We consider general economies in which rational agents interact locally. The local aspect of the interactions is designed to represent in a simple abstract way social interactions, that is, socioeconomic environments in which markets do not mediate all of agents' choices, which might be in part determined, for instance, by family, peer group, or ethnic group effects. We study static as well as dynamic infinite horizon economies; we allow for economies with incomplete information, and we consider jointly global and local interactions, to integrate e.g., global externalities and markets with peer and group effects. We provide conditions under which such economies have rational expectations equilibria. We illustrate the effects of local interactions when agents are rational by studying in detail the equilibrium properties of a simple economy with quadratic preferences which captures, in turn, local preferences for conformity, habit persistence, and preferences for status or adherence to aggregate norms of behavior.
AB - We consider general economies in which rational agents interact locally. The local aspect of the interactions is designed to represent in a simple abstract way social interactions, that is, socioeconomic environments in which markets do not mediate all of agents' choices, which might be in part determined, for instance, by family, peer group, or ethnic group effects. We study static as well as dynamic infinite horizon economies; we allow for economies with incomplete information, and we consider jointly global and local interactions, to integrate e.g., global externalities and markets with peer and group effects. We provide conditions under which such economies have rational expectations equilibria. We illustrate the effects of local interactions when agents are rational by studying in detail the equilibrium properties of a simple economy with quadratic preferences which captures, in turn, local preferences for conformity, habit persistence, and preferences for status or adherence to aggregate norms of behavior.
KW - Existence of equilibria
KW - Local interactions
KW - Rational expectations
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U2 - 10.1016/j.jet.2004.08.004
DO - 10.1016/j.jet.2004.08.004
M3 - Article
AN - SCOPUS:33144490083
SN - 0022-0531
VL - 127
SP - 74
EP - 116
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 1
ER -