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Assume that the economy consists of two infinitely lived consumers named i = 1 , 2 . There is one nonstorable consumption good. Consumer i
Assume that the economy consists of two infinitely lived consumers named There is one nonstorable consumption good. Consumer i consumes at time Consumer s preferences over consumption streams are represented by
The endowments are decided each period by a toss of a fair coin. If the outcome of the coin toss is heads consumer receives one unit of the consumption good, and consumer receives nothing. If the outcome is tails consumer receives one unit of the consumption good, and consumer receives nothing.
i Let denote the state of the economy at date denotes the time price of an ArrowDebreu security that pays one unit of consumption in date conditional on state and denotes consumer s consumption at date in state Define an ArrowDebreu competitive equilibrium.
ii Compute the equilibrium under the assumption that ArrowDebreu securities are traded in time after the realization Explain your answer
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