Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324227 
Year of Publication: 
2025
Series/Report no.: 
Center for Mathematical Economics Working Papers No. 707
Publisher: 
Bielefeld University, Center for Mathematical Economics (IMW), Bielefeld
Abstract: 
In diffusion models, few suitably chosen financial securities allow to complete the market. As a consequence, the efficient allocations of static Arrow-Debreu equilibria can be attained in Radner equilibria by dynamic trading. We show that this celebrated result generically fails if there is Knightian uncertainty about volatility. A Radner equilibrium with the same efficient allocation as in an Arrow-Debreu equilibrium exists if and only if the discounted net trades of the equilibrium allocation display no ambiguity in the mean. This property is violated generically in endowments, and thus Arrow-Debreu equilibrium allocations are generically unattainable by dynamically trading few long-lived assets.
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Working Paper

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