Exogenous expectations on endogenous uncertainty: recursive equilibrium and survival

This paper analyses general equilibrium models with finite heterogeneous agents having exogenous expectations on endogenous uncertainty. It is shown that there exists a recursive equilibrium with the state space consisting of the past aggregate portfolio distribution and the current state of the nature and that it implements the sequential equilibrium. We establish conditions under which the recursive equilibrium is continuous. Moreover, we use the continuous recursive relation of the aggregate variables to prove that if the economy has two types of agents, the one who commits persistent mistakes on the expectation rules of the future endogenous variables is driven out of the market by the others with correct anticipations of the variables, that is, the rational expectations agents.

Private Transfer Choices under Uncertainty in Human Capital

We develop a theoretical model for parental behavior regarding land inheritance, accounting for consumption and savings strategies. We identify two types of modeling: one with, and another without, strategic behavior. In the first model, we assume that children do not act strategically towards their parent. We find that the child with the highest return to human capital is more likely to receive a larger share of the land if the difference in offspring’s returns is large. In the second model, we allow for each child to influence parent’s optimal choice of bequest by providing services to the latter. We illustrate that the child’s strategy for service provision is sufficient to assure that the one providing more assistance will receive a larger share of the bequest in a Nash equilibrium. We conclude by illustrating our theoretical model with some empirical analysis using longitudinal data for the rural Brazilian Amazon