Knight-Walras equilibria

Patrick Beißner and Frank Riedel
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Patrick Beißner: Center for Mathematical Economics, Bielefeld University
Authors registered in the RePEc Author Service: Patrick Beißner

No 558, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: Knightian uncertainty leads naturally to nonlinear expectations. We introduce a corresponding equilibrium concept with sublinear prices and establish their existence. In general, such equilibria lead to Pareto inefficiency and coincide with Arrow-Debreu equilibria only if the values of net trades are ambiguity-free in the mean. Without aggregate uncertainty, inefficiencies arise generically. We introduce a constrained efficiency concept, uncertainty-neutral efficiency and show that Knight-Walras equilibrium allocations are efficient in this constrained sense. Arrow-Debreu equilibria turn out to be non-robust with respect to the introduction of Knightian uncertainty.

Keywords: Knightian Uncertainty; Ambiguity; General Equilibrium (search for similar items in EconPapers)
Pages: 26
Date: 2016-05-30
New Economics Papers: this item is included in nep-mic and nep-upt
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https://pub.uni-bielefeld.de/download/2903538/2903539 First Version, 2016 (application/x-download)

Related works:
Working Paper: Knight--Walras Equilibria (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bie:wpaper:558

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