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Knight-Walras equilibria

Author

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  • Beißner, Patrick

    (Center for Mathematical Economics, Bielefeld University)

  • Riedel, Frank

    (Center for Mathematical Economics, Bielefeld University)

Abstract

Knightian uncertainty leads naturally to nonlinear expectations. We introduce a corresponding equilibrium concept with sublinear prices and establish their existence. In general, such equilibria lead to Pareto inefficiency and coincide with Arrow-Debreu equilibria only if the values of net trades are ambiguity-free in the mean. Without aggregate uncertainty, inefficiencies arise generically. We introduce a constrained efficiency concept, uncertainty-neutral efficiency and show that Knight-Walras equilibrium allocations are efficient in this constrained sense. Arrow-Debreu equilibria turn out to be non-robust with respect to the introduction of Knightian uncertainty.

Suggested Citation

  • Beißner, Patrick & Riedel, Frank, 2016. "Knight-Walras equilibria," Center for Mathematical Economics Working Papers 558, Center for Mathematical Economics, Bielefeld University.
    • Handle: RePEc:bie:wpaper:558
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    References listed on IDEAS

    as
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    Keywords

    Knightian Uncertainty; Ambiguity; General Equilibrium;
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