Center for Mathematical Economics Working Papers 527
Under risk, Arrow-Debreu equilibria can be implemented as Radner equilibria by continuous trading of few long-lived securities. We show that this result generically fails if there is Knightian uncertainty in the volatility. Implementation is only possible if all discounted net trades of the equilibrium allocation are mean ambiguity-free.
Knightian Uncertainty Ambiguity General Equilibrium Asset Pricing Radner Equilibrium