Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296447 
Authors: 
Year of Publication: 
2023
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 18 [Issue:] 4 [Year:] 2023 [Pages:] 1547-1583
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
I model an incomplete markets economy where unaware agents do not perceive all states of nature, so unintended default can occur when asset returns differ from what was perceived. The presence of default plays a crucial role in the proof of existence - particularly in economies where beliefs are biased - by removing perceived arbitrage opportunities with respect to delivery-adjusted asset returns. The First Fundamental Welfare Theorem fails because of default and pecuniary inefficiencies, but the Second Fundamental Welfare Theorem holds for economies with no aggregate risk. Welfare is shown to not necessarily be monotonic in discovery, or the increasing of awareness.
Subjects: 
default
General equilibrium
incomplete markets
unawareness
JEL: 
D52
D53
D83
G18
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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