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Title:Intertemporal equilibria with knightian uncertainty PDF Logo
Authors:Dana, Rose-Anne
Riedel, Frank
Issue Date:2010
Series/Report no.:Working papers // Institute of Mathematical Economics 440
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.
Subjects:Knightian Uncertainty
Ambiguity
Incomplete Preferences
General Equilibrium Theory
No Trade
JEL:D51
D81
D91
Document Type:Working Paper
Appears in Collections:Working Papers, Center for Mathematical Economics (IMW), Bielefeld University

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