No-arbitrage, overlapping sets of priors and the existence of efficient allocations and equilibria in the presence of risk and ambiguity

Rose-Anne Dana () and Cuong Le van
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Rose-Anne Dana: CEREMADE, https://www.ceremade.dauphine.fr/~dana/

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: The theory of existence of equilibrium with short-selling is reconsidered under risk and ambiguity modelled by risk averse variational preferences. A sufficient condition for existence of efficient allocations is that the relative interiors of the risk adjusted sets of expectations overlap. This condition is necessary if agents are not risk neutral at extreme levels of wealths either positive or negative. It is equivalent to the condition that there does not exist mutually compatible trades, with non negative expected value with respect to any risk adjusted prior, strictly positive for some agent and some prior. It is shown that the more uncertainty averse and the more risk averse, the more likely are efficient allocations and equilibria to exist

Keywords: Uncertainty; risk; common prior; equilibria with short-selling; variational preferences (search for similar items in EconPapers)
JEL-codes: C62 D50 D81 D84 G1 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2008-05, Revised 2009-11
New Economics Papers: this item is included in nep-upt
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ftp://mse.univ-paris1.fr/pub/mse/CES2008/B08039.pdf (application/pdf)

Related works:
Working Paper: No-arbitrage, overlapping sets of priors and the existence of efficient allocations and equilibria in the presence of risk and ambiguity (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:b08039

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