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Sharing Model Uncertainty

Author

Listed:
  • Chiaki Hara

    (Kyōto daigaku = Kyoto University)

  • Sujoy Mukerji

    (QMUL - Queen Mary University of London)

  • Frank Riedel

    (Universität Bielefeld = Bielefeld University, UJ - University of Johannesburg [Johannesbourg, South Africa])

  • Jean-Marc Tallon

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

This paper examines efficient allocations in economies where consumers exhibit heterogeneous smooth ambiguity preferences and face model uncertainty with a common set of identifiable models. Aggregate endowment is ambiguous. We characterize economies where the representative consumer is of the smooth ambiguity type and derive efficient sharing rules. Heterogeneous ambiguity aversion leads to sharing rules that systematically differ from those in vNM-economies. The representative consumer's ambiguity aversion differs from that of the typical consumer; this leads to more compelling asset-pricing predictions. We focus on point-identified models but show that our insights extend to partially-identified models.

Suggested Citation

  • Chiaki Hara & Sujoy Mukerji & Frank Riedel & Jean-Marc Tallon, 2025. "Sharing Model Uncertainty," Working Papers halshs-04598577, HAL.
    • Handle: RePEc:hal:wpaper:halshs-04598577
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-04598577v2
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