Knight--Walras Equilibria
Economics
2016-05-17 v1
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.
Cite
@article{arxiv.1605.04385,
title = {Knight--Walras Equilibria},
author = {Patrick Beissner and Frank Riedel},
journal= {arXiv preprint arXiv:1605.04385},
year = {2016}
}