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Knight--Walras Equilibria

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Listed:
  • Patrick Beissner
  • Frank Riedel
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.

Suggested Citation

  • Patrick Beissner & Frank Riedel, 2016. "Knight--Walras Equilibria," Papers 1605.04385, arXiv.org.
    • Handle: RePEc:arx:papers:1605.04385
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    References listed on IDEAS

    as
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