Intertemporal Equilibria with Knightian uncertainty

Rose-Anne Dana () and Frank Riedel
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Rose-Anne Dana: CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: We study a dynamic and infinite-dimensional model with incomplete multiple prior preferences. In interior efficient allocations, agents share a common risk-adjusted prior and subjective interest rate. Interior efficient allocations and equilibria coincide with those of economies with subjective expected utility and priors from the agents' multiple prior sets. A specific model with neither risk nor uncertainty at the aggregate level is considered. Risk is always fully insured. For small levels of ambiguity, there exists an equilibrium with inertia where agents also insure fully against Knightian uncertainty. When the level of ambiguity exceeds a critical threshold, full insurance no longer prevails and there exist equilibria with inertia where agents do not insure against uncertainty at all. We also show that equilibria with inertia are indeterminate.

Keywords: Dynamic general equilibrium; No trade; General equilibrium theory; Incomplete preferences; Ambiguity; Knightian uncertaintyagainst uncertainty at all. . Dynamic general equilibrium; Knightian uncertaintyagainst uncertainty at all. . (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-dge, nep-mic and nep-upt
Note: View the original document on HAL open archive server: https://hal.science/hal-00927170v1
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Citations: View citations in EconPapers (36)

Published in Journal of Economic Theory, 2013, 148 (4), pp.1582-1605. ⟨10.1016/j.jet.2013.04.005⟩

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Related works:
Working Paper: Intertemporal equilibria with Knightian uncertainty (2017)
Journal Article: Intertemporal equilibria with Knightian uncertainty (2013)
Working Paper: Intertemporal equilibria with Knightian Uncertainty (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00927170

DOI: 10.1016/j.jet.2013.04.005

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