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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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Citations

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Cited by:
  1. : Kostas Koufopoulos & : Roman Kozhan, 2012. "Optimal Insurance under Advserse Selection and Ambiguity Aversion," Working Papers wpn12-07, Warwick Business School, Finance Group.
  2. Piero Gottardi & Jean Marc Tallon & Paolo Ghirardato, 2010. "Flexible Contracts," CESifo Working Paper Series 2927, CESifo Group Munich.
  3. Alain Chateauneuf & Luciano De Castro, 2011. "Ambiguity Aversion and Absence of Trade," Discussion Papers 1535, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Alain Chateauneuf & Luciano I. de Castro, 2011. "Ambiguity Aversion and Trade," Discussion Papers 1526, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Han Ozsoylev & Jan Werner, 2011. "Liquidity and asset prices in rational expectations equilibrium with ambiguous information," Economic Theory, Springer, vol. 48(2), pages 469-491, October.
  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. Werner, Jan, 2011. "Risk aversion for variational and multiple-prior preferences," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 382-390.
  8. Corbae, Dean & Marimon, Ramon, 2011. "Introduction to Incompleteness and Uncertainty in Economics," Journal of Economic Theory, Elsevier, vol. 146(3), pages 775-784, May.

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