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Efficient allocations under ambiguity

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  • Strzalecki, Tomasz
  • Werner, Jan

Abstract

Important implications of the expected utility hypothesis and risk aversion are that if agents have the same probability belief, then consumption plans in every efficient allocation of resources under uncertainty are comonotone with the aggregate endowment, and if their beliefs are concordant, then the consumption plans are measurable with respect to the aggregate endowment. We study these two properties of efficient allocations for models of preferences that exhibit ambiguity aversion using the concept of conditional beliefs, which we introduce in this paper. We provide characterizations of such conditional beliefs for the standard models of preferences used in applications.

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Bibliographic Info

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

Volume (Year): 146 (2011)
Issue (Month): 3 (May)
Pages: 1173-1194

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:3:p:1173-1194

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

Related research

Keywords: Risk sharing Ambiguity aversion Conditional beliefs Common prior;

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References

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Citations

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Cited by:
  1. Luciano Castro & Alain Chateauneuf, 2011. "Ambiguity aversion and trade," Economic Theory, Springer, Springer, vol. 48(2), pages 243-273, October.
  2. Piero Gottardi & Jean-Marc Tallon & Paolo Ghirardato, 2011. "Flexible contracts," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 09072, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  3. Alain Chateauneuf & Luciano De Castro, 2011. "Ambiguity Aversion and Absence of Trade," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1535, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Corbae, Dean & Marimon, Ramon, 2011. "Introduction to Incompleteness and Uncertainty in Economics," Journal of Economic Theory, Elsevier, Elsevier, vol. 146(3), pages 775-784, May.
  5. Werner, Jan, 2011. "Risk aversion for variational and multiple-prior preferences," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 382-390.
  6. Araujo A. & Chateauneuf A. & Gama-Torres J. & Novinski R., 2014. "General equilibrium, risk taking and volatility," Working Papers 2014-181, Department of Research, Ipag Business School.
  7. : Kostas Koufopoulos & : Roman Kozhan, 2012. "Optimal Insurance under Advserse Selection and Ambiguity Aversion," Working Papers, Warwick Business School, Finance Group wpn12-07, Warwick Business School, Finance Group.
  8. Han Ozsoylev & Jan Werner, 2011. "Liquidity and asset prices in rational expectations equilibrium with ambiguous information," Economic Theory, Springer, Springer, vol. 48(2), pages 469-491, October.

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