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Pareto Optimality and Indeterminacy of General Equilibrium under Knightian Uncertainty

Author

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  • Wei Ma

    (International Business School Suzhou, Xi’an Jiaotong-Liverpool University, China; Department of Economics, University of Pretoria)

Abstract

This paper studies general equilibrium theory, for both complete and incomplete markets, under Knightian uncertainty. Noting that the preference represented by Knightian uncertainty induces a set of complete preferences, we set ourselves the task of inquiring the relationship between an equilibrium under Knightian uncertainty and its counterpart under the induced complete preferences. It is shown that they are actually equivalent. The importance of this result is due to its applications, among which the existence of equilibria under Knightian uncertainty and their computation follow at once from the existing knowledge on general equilibrium theory under complete preferences. Moreover, by means of that equivalence, we are in a position to investigate the problem of efficiency and indeterminacy of equilibria under Knightian uncertainty.

Suggested Citation

  • Wei Ma, 2016. "Pareto Optimality and Indeterminacy of General Equilibrium under Knightian Uncertainty," Working Papers 201621, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201621
    as

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    References listed on IDEAS

    as
    1. Dana, Rose-Anne & Riedel, Frank, 2013. "Intertemporal equilibria with Knightian uncertainty," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1582-1605.
    2. Geanakoplos, J. & Polemarchakis, H., 1985. "Existence,regularity, and constrained suboptimality of competitive allocations when the asset market is incomplete," LIDAM Discussion Papers CORE 1985037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Guillaume Carlier & Rose-Anne Dana, 2013. "Pareto optima and equilibria when preferences are incompletely known," Post-Print hal-00661903, HAL.
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    5. Gale, D. & Mas-Colell, A., 1975. "An equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(1), pages 9-15, March.
    6. Geanakoplos, John & Mas-Colell, Andreu, 1989. "Real indeterminacy with financial assets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 22-38, February.
    7. repec:dau:papers:123456789/8025 is not listed on IDEAS
    8. Carlier, G. & Dana, R.-A., 2013. "Pareto optima and equilibria when preferences are incompletely known," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1606-1623.
    9. repec:ipg:wpaper:2013-016 is not listed on IDEAS
    10. repec:dau:papers:123456789/11268 is not listed on IDEAS
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    More about this item

    Keywords

    General equilibrium; Knightian uncertainty; Pareto optimality;
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