Question

1. Consider an Arrow-Debreu model with 2 periods (1 and 2) and 2 states of the world (1 and 2) in period 2. The home agent has income Y1 = 0, Y2(1) 200, Y2(2) = 50; the probabilities for the different states are π(1) and π(2) = 름 . Th = 100,坋(1) 0,坋(2) = 0; the probabilities for the different states are (1)and *(2) foreign agents have utility function: Ui In(G) +r(1) In(C (1)) + π(2) In(C(2)). Further assume that r-0%. The Arrow-Debreu economy is described in the table below e foreign agent has income Yi 2 Home Period 1 Period 2 Foreign Period 1 Period 2 State of the world (s): Endowment Probability 100 200 50 (a) Find Ci, C: (1), Ca (2) (b) For which state (s = 1 or 2) is the price of an Arrow-Debreu security lower? Why are the two prices not equal? (c) How many Arrow-Debreu securities (AD) for each state of the world were bought and sold in this economy?

Answer 1

Thus y tuns tt clay yǐjd 100ttns 부 suspension b0 uDO 133 bbls