Equilibria Under Knightian Price Uncertainty

Patrick Beissner and Frank Riedel

Econometrica, 2019, vol. 87, issue 1, 37-64

Abstract: We study economies with Knightian uncertainty about state prices. We introduce an equilibrium concept with sublinear prices and prove that equilibria exist under weak conditions. In general, such equilibria lead to inefficient allocations; they coincide with Arrow–Debreu equilibria if and only if the values of net trades are ambiguity‐free in mean. In economies without aggregate uncertainty, inefficiencies are generic. Equilibrium allocations under price uncertainty are efficient in a constrained sense that we call uncertainty–neutral efficient. Arrow–Debreu equilibria turn out to be non‐robust with respect to the introduction of Knightian uncertainty.

Date: 2019
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Citations: View citations in EconPapers (24)

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https://doi.org/10.3982/ECTA14934

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Working Paper: Equilibria Under Knightian Price Uncertainty (2019)
Working Paper: Equilibria under Knightian Price Uncertainty (2018)
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