Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2006/2: Trade and Communication Under Subjective Information

Jack D. Stecher ()
Additional contact information
Jack D. Stecher: Dept. of Accounting, Auditing and Law, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Accounting, Auditing and Law, Helleveien 30, N-5045 Bergen, Norway

Abstract: This paper models an economy where agents perceive the choices they face subjectively, and have subjective interpretations of the terminology they use in a shared business language. Preferences are defined on what an agent perceives, and not on what is objectively presented to an agent. A business language enables agents to trade, provided the terminology in the language is sufficiently vague: once agents can express more detail than their trading partners can perceive, the language ceases to be useful. Under some regularity conditions on the language, an appropriately defined notion of competitive equilibrium exists. However, much less can be said about welfare than in the neoclassical case, as there are counter-examples to both welfare theorems.

Keywords: Language; Perceptual Limits; Unawareness

JEL-codes: C65; D01; D82; M41

30 pages, March 3, 2006

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