Question 1, Arrow-Debreu Economy: Think of a simple exchange economy with two agents that have the following utility functions: UC)=0.2500+ 0.5E[In(c1(0)] U2O) = co +E[ln(c(0)] where @ denotes the two equally likely states at date 1. The endowments are Date t=0 Date t=1 =1 A=2 Agent 1 2 2 4 Agent 2 4 4 2 a. Describe the Pareto optimum or the set of Pareto optima. Is it unique? Is perfect risk sharing achieved? Why or why not? Answer the same question if the state 2 endowments were 5 for agent 1 and 3 for agent 2. Agents can trade with two Arrow-Debreu securities denoted by Q [with payoffs (1,0)) and R [with payoffs (0.1)). Calculate the competitive equilibrium allocation. Is it Pareto optimal? Discuss intuitively its characteristics (the determinants of the prices of the two b. securities and the post-trade allocation). Question 1, Arrow-Debreu Economy: Think of a simple exchange economy with two agents that have the following utility functions: UC)=0.2500+ 0.5E[In(c1(0)] U2O) = co +E[ln(c(0)] where @ denotes the two equally likely states at date 1. The endowments are Date t=0 Date t=1 =1 A=2 Agent 1 2 2 4 Agent 2 4 4 2 a. Describe the Pareto optimum or the set of Pareto optima. Is it unique? Is perfect risk sharing achieved? Why or why not? Answer the same question if the state 2 endowments were 5 for agent 1 and 3 for agent 2. Agents can trade with two Arrow-Debreu securities denoted by Q [with payoffs (1,0)) and R [with payoffs (0.1)). Calculate the competitive equilibrium allocation. Is it Pareto optimal? Discuss intuitively its characteristics (the determinants of the prices of the two b. securities and the post-trade allocation)