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Intertemporal Equilibria with Knightian uncertainty

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  • Rose-Anne Dana

    ()
    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - Paris Dauphine)

  • Franck Riedel

    (Center for mathematical economics - Universität Bielefeld (GERMANY))

Abstract

We study a dynamic and infinite-dimensional model with incomplete multiple prior preferences. In interior efficient allocations, agents share a common risk-adjusted prior and subjective interest rate. Interior efficient allocations and equilibria coincide with those of economies with subjective expected utility and priors from the agentsʼ multiple prior sets. A specific model with neither risk nor uncertainty at the aggregate level is considered. Risk is always fully insured. For small levels of ambiguity, there exists an equilibrium with inertia where agents also insure fully against Knightian uncertainty. When the level of ambiguity exceeds a critical threshold, full insurance no longer prevails and there exist equilibria with inertia where agents do not insure against uncertainty at all. We also show that equilibria with inertia are indeterminate.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number hal-00927170.

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Date of creation: 2013
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Publication status: Published, Journal of Economic Theory, 2013, 148, 4, 1582-1605
Handle: RePEc:hal:journl:hal-00927170

Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00927170
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Keywords: Dynamic general equilibrium; No trade; General equilibrium theory; Incomplete preferences; Ambiguity; Knightian uncertaintyagainst uncertainty at all. . Dynamic general equilibrium; No trade; General equilibrium theory; Incomplete preferences; Ambiguity; Knightian uncertaintyagainst uncertainty at all. . Dynamic general equilibrium; No trade; General equilibrium theory; Incomplete preferences; Ambiguity; Knightian uncertaintyagainst uncertainty at all. .;

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  1. Luca Rigotti & Chris Shannon, 2005. "Uncertainty and Risk in Financial Markets," Econometrica, Econometric Society, Econometric Society, vol. 73(1), pages 203-243, 01.
  2. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, Econometric Society, vol. 74(6), pages 1447-1498, November.
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  7. Bewley, Truman F., 1972. "Existence of equilibria in economies with infinitely many commodities," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(3), pages 514-540, June.
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  9. Tallon, Jean-Marc & Dana, Rose-Anne & Chateauneuf, Alain, 2000. "Optimal risk-sharing rules and equilibria with Choquet-expected-utility," Economics Papers from University Paris Dauphine 123456789/5461, Paris Dauphine University.
  10. Antoine Billot & Alain Chateauneuf & Itzhak Gilboa & Jean-Marc Tallon, 2000. "Sharing beliefs: between agreeing and disagreeing," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00174553, HAL.
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  18. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
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Citations

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Cited by:
  1. R.A Dana & Cuong Le Van, 2014. "Efficient allocations and Equilibria with short-selling and Incomplete Preferences," Working Papers, Department of Research, Ipag Business School 2014-061, Department of Research, Ipag Business School.
  2. Patrick Beißner, 2013. "Radner equilibria under ambiguous volatility," Working Papers 493, Bielefeld University, Center for Mathematical Economics.
  3. Rose-Anne Dana & Cuong Le Van, 2014. "Efficient allocations and Equilibria with short-selling and Incomplete Preferences," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01020646, HAL.
  4. Rose-Anne Dana & Cuong Le Van, 2014. "Efficient allocations and Equilibria with short-selling and Incomplete Preferences," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 14041, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  5. Carlier, G. & Dana, R.-A., 2013. "Pareto optima and equilibria when preferences are incompletely known," Journal of Economic Theory, Elsevier, Elsevier, vol. 148(4), pages 1606-1623.
  6. repec:ipg:wpaper:201420 is not listed on IDEAS

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