Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149015
Authors: 
Beißner, Patrick
Riedel, Frank
Year of Publication: 
2016
Series/Report no.: 
Working Papers, Center for Mathematical Economics 558
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.
Subjects: 
Knightian Uncertainty
Ambiguity
General Equilibrium
JEL: 
D81
C61
G11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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