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Knight--Walras Equilibria
- Publication Year :
- 2016
-
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.
- Subjects :
- Quantitative Finance - Economics
Subjects
Details
- Database :
- arXiv
- Publication Type :
- Report
- Accession number :
- edsarx.1605.04385
- Document Type :
- Working Paper