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arXiv · 1605.04385

Knight--Walras Equilibria

Patrick Beissner·Frank Riedel
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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.

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Patrick Beissner, Frank Riedel. 2016-05-14. Knight--Walras Equilibria. https://arxiv.org/abs/1605.04385

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