Non-existence of recursive equilibria on compact state spaces when markets are incomplete

@article{Krebs2004NonexistenceOR,
  title={Non-existence of recursive equilibria on compact state spaces when markets are incomplete},
  author={Tom Krebs},
  journal={J. Economic Theory},
  year={2004},
  volume={115},
  pages={134-150}
}
This paper analyzes one-good exchange economies with two infinitely-lived agents and incomplete markets. It is shown that there are no recursive (Markov) equilibria for which borrowing (debt) constraints never bind if the state space of exogenous and endogenous variables is a compact subset of IR. Moreover, for large enough (but finite) borrowing limits, no recursive equilibrium with compact state space exists. These non-existence results hold for any economy satisfying the following standard… CONTINUE READING
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