Intertemporal equilibria with Knightian uncertainty

Rose-Anne Dana and Frank Riedel

Journal of Economic Theory, 2013, vol. 148, issue 4, 1582-1605

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 agentsʼ 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: Knightian uncertainty; Ambiguity; Incomplete preferences; General equilibrium theory; No trade; Dynamic general equilibrium (search for similar items in EconPapers)
JEL-codes: D51 D81 D91 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (36)

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Related works:
Working Paper: Intertemporal equilibria with Knightian uncertainty (2017)
Working Paper: 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:eee:jetheo:v:148:y:2013:i:4:p:1582-1605

DOI: 10.1016/j.jet.2013.04.005

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