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Interim efficient allocations under uncertainty

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  • Kajii, Atsushi
  • Ui, Takashi

Abstract

This paper considers an exchange economy under uncertainty with asymmetric information. Uncertainty is represented by multiple priors and posteriors of agents who have either Bewley's incomplete preferences or Gilboa-Schmeidler's maximin expected utility preferences. The main results characterize interim efficient allocations under uncertainty; that is, they provide conditions on the sets of posteriors, thus implicitly on the way how agents update the sets of priors, for non-existence of a trade which makes all agents better off at any realization of private information. For agents with the incomplete preferences, the condition is necessary and sufficient, but for agents with the maximin expected utility preferences, the condition is sufficient only. A couple of necessary conditions for the latter case are provided.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 1 (January)
Pages: 337-353

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Handle: RePEc:eee:jetheo:v:144:y:2009:i:1:p:337-353

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Multiple priors Interim efficiency No trade Dynamic consistency Rectangular prior set;

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  1. Dov Samet, 1997. "Common Priors and Separation of Convex Sets," Game Theory and Information 9701002, EconWPA.
  2. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  12. Shannon, Chris & Strzalecki, Tomasz & Rigotti, Luca, 2008. "Subjective Beliefs and Ex Ante Trade," Scholarly Articles 3637104, Harvard University Department of Economics.
  13. Simon Grant & Atsushi Kajii & Ben Polak, 1999. "Decomposable Choice Under Uncertainty," Cowles Foundation Discussion Papers 1207, Cowles Foundation for Research in Economics, Yale University.
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  15. Antoine Billot & Alain Chateauneuf & Itzhak Gilboa & Jean-Marc Tallon, 2000. "Sharing Beliefs: Between Agreeing and Disagreeing," Econometrica, Econometric Society, vol. 68(3), pages 685-694, May.
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  17. Dana, Rose-Anne, 2004. "Ambiguity, uncertainty aversion and equilibrium welfare," Economics Papers from University Paris Dauphine 123456789/5393, Paris Dauphine University.
  18. Atsushi Kajii & Takashi Ui, 2004. "Incomplete Information Games with Multiple Priors," KIER Working Papers 583, Kyoto University, Institute of Economic Research.
  19. Dana, Rose-Anne, 2002. "On Equilibria when Agents Have Multiple Priors," Economics Papers from University Paris Dauphine 123456789/5456, Paris Dauphine University.
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Citations

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Cited by:
  1. Le Van, Cuong & Dana, Rose-Anne, 2010. "Overlapping Risk Adjusted Sets of Priors and the Existence of Efficient Allocations and Equilibria with Short-Selling," Economics Papers from University Paris Dauphine 123456789/5045, Paris Dauphine University.
  2. Martins-da-Rocha, Victor Filipe, 2009. "Interim efficiency with MEU-preferences," Economics Working Papers (Ensaios Economicos da EPGE) 696, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  3. : Kostas Koufopoulos & : Roman Kozhan, 2012. "Optimal Insurance under Advserse Selection and Ambiguity Aversion," Working Papers wpn12-07, Warwick Business School, Finance Group.
  4. Nabil I. Al-Najjar & Luciano De Castro, 2010. "Uncertainty, Efficiency and Incentive Compatibility," Discussion Papers 1532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Rigotti, Luca & Shannon, Chris, 2012. "Sharing risk and ambiguity," Journal of Economic Theory, Elsevier, vol. 147(5), pages 2028-2039.

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