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Please provide complete answer. The answer include likewise or other terms that leaves the solution unsolved to the end will be down voted. Consider two
Please provide complete answer. The answer include likewise or other terms that leaves the solution unsolved to the end will be down voted.
Consider two types of investors and two possible states at t=1. with a Bernoulli utility function of the form: u(cj0)+[1u(cj1)+2u(cj2)] where 1 is the probability of state 1 and 2=11 is the probability of state 2 , and w0,w1, and w2 denote the aggregate endowments at t=0 and the two states at t=1, respectively. a) With the usual notations introduced in the optional lecture notes on Arrow-Debreu Economy and General Equilibrium, solve for the asset price qi in a competitive equilibrium. b) Now consider a social planner who divides the aggregate endowments up into amounts allocated to each of the two representative investors subject to the resource constraints w0c10+c20;w1c11+c21;w2c12+c22 in order to maximize a weighted sum of their expected utilities. Find expressions that relate marginal rates of substitution between t=0 and t=1 across the two agent types. c) How do your answers in Parts a) and b) say about the relationship between the competitive equilibrium and social planner problem? Briefly explainStep by Step Solution
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