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Intertemporal Equilibria with Knightian uncertainty

Author

Listed:
  • Rose-Anne Dana

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Franck Riedel

    (Center for mathematical economics - Universität Bielefeld = Bielefeld University)

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 agents' 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.

Suggested Citation

  • Rose-Anne Dana & Franck Riedel, 2013. "Intertemporal Equilibria with Knightian uncertainty," Post-Print hal-00927170, HAL.
  • Handle: RePEc:hal:journl:hal-00927170
    DOI: 10.1016/j.jet.2013.04.005
    Note: View the original document on HAL open archive server: https://hal.science/hal-00927170v1
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    More about this item

    Keywords

    Dynamic general equilibrium; No trade; General equilibrium theory; Incomplete preferences; Ambiguity; Knightian uncertaintyagainst uncertainty at all. . Dynamic general equilibrium; Knightian uncertaintyagainst uncertainty at all. .;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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