In equilibrium U′(Yt)qe t = δEt[U′(Yt+1)(qe t+1 + ˜ Yt+1)] holds. Assume the following: . Infinite periods . δ = .97 . The agent follows ln utility . There are 2 futures states where (Y 1, Y 2) = (2, .50) which evolve based on transition matrix T. . The transition matrix T is: T = .60 .40 .40 .60 . (hint: Answering this question involves solving the system of equations: U′(Yt)qe t = δEt[U′( ˜ Yt+1)(˜qt+1 + ˜ Yt+1)] U′(Yt)qe t = δEt[U′( ˜ Yt+1)( ˜ Yt+1)] + δEt[U′( ˜ Yt+1)(˜qt+1)] (1) Answer the following: (a) What are the 2 equilibrium conditions?

In equilibrium U′(Yt)qe t = δEt[U′(Yt+1)(qe t+1 + ˜ Yt+1)] holds. Assume the following: . Infinite periods . δ = .97 . The agent follows ln utility . There are 2 futures states where (Y 1, Y 2) = (2, .50) which evolve based on transition matrix T. . The transition matrix T is: T = .60 .40 .40 .60 . (hint: Answering this question involves solving the system of equations: U′(Yt)qe t = δEt[U′( ˜ Yt+1)(˜qt+1 + ˜ Yt+1)] U′(Yt)qe t = δEt[U′( ˜ Yt+1)( ˜ Yt+1)] + δEt[U′( ˜ Yt+1)(˜qt+1)] (1) Answer the following: (a) What are the 2 equilibrium conditions?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.11P

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