Equilibria under Knightian Price Uncertainty
Patrick Beißner and
Frank Riedel ()
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Patrick Beißner: Center for Mathematical Economics, Bielefeld University
No 597, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University
We study economies in which agents face Knightian uncertainty about state prices. Knightian uncertainty leads naturally to nonlinear expectations. We introduce a corresponding equilibrium concept with sublinear prices and prove that equilibria exist under weak conditions. In general, such equilibria lead to Pareto inefficient allocations; the equilibria coincide with Arrow-Debreu equilibria only if the values of net trades are ambiguity-free in the mean. In economies without aggregate uncertainty, inefficiencies are generic. We introduce a constrained efficiency concept, uncertainty-neutral efficiency; equilibrium allocations under price uncertainty are efficient in this constrained sense. Arrow-Debreu equilibria turn out to be non-robust with respect to the introduction of Knightian uncertainty.
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https://pub.uni-bielefeld.de/download/2930443/2930444 First Version, 2018 (application/pdf)
Journal Article: Equilibria Under Knightian Price Uncertainty (2019)
Working Paper: Equilibria Under Knightian Price Uncertainty (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bie:wpaper:597
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