Intertemporal equilibria with Knightian uncertainty

Rose-Anne Dana and Frank Riedel

No 440, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: We study a dynamic and infinite-dimensional model with Knightian uncertainty modeled by incomplete multiple prior preferences. In interior efficient allocations, agents share a common risk-adjusted prior and use the same 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. We show that the set of equilibria with inertia contains the equilibria of the economy with variational preferences anchored at the initial endowments. A case study in an economy without aggregate uncertainty shows that risk is fully insured, while uncertainty can remain fully uninsured. Pessimistic agents with Gilboa-Schmeidler's max-min preferences would fully insure risk and uncertainty.

Keywords: Knightian Uncertainty; Ambiguity; Incomplete Preferences; General Equilibrium Theory; No Trade (search for similar items in EconPapers)
Date: 2017-03-21
New Economics Papers: this item is included in nep-dge and nep-upt
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https://pub.uni-bielefeld.de/download/2909314/2909315 First Version, 2010 (application/x-download)

Related works:
Journal Article: Intertemporal equilibria with Knightian uncertainty (2013)
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:bie:wpaper:440

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