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Efficiency under Uncertainty and Non‐convexity: Evaluating the Role of Probabilities

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  • Jean‐Paul Chavas
  • Walter Briec

Abstract

This paper investigates the economics of uncertainty using a state‐contingent approach with a focus on the role of non‐convexity. Under efficiency, the slopes of a separating hypersurface measures state‐contingent prices. As argued by Yaari, normalized state‐contingent prices provide a measure of subjective probabilities. But efficiency under non‐convexity can require non‐linear pricing. The analysis identifies non‐convexity conditions under which probability assessments are not appropriate. Implications for economic and welfare analysis under uncertainty are discussed.

Suggested Citation

  • Jean‐Paul Chavas & Walter Briec, 2019. "Efficiency under Uncertainty and Non‐convexity: Evaluating the Role of Probabilities," Economica, London School of Economics and Political Science, vol. 86(344), pages 832-853, October.
    • Handle: RePEc:bla:econom:v:86:y:2019:i:344:p:832-853
    DOI: 10.1111/ecca.12293
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