Seminar

Intertemporal Equilibria with Knightian Uncertainty

Frank Riedel (Universität Bielefeld)

September 14, 2010, 11:00–12:30

Toulouse

Room MF 323

Economic Theory Seminar

Abstract

We study a dynamic and infinite{dimensional model with Knightian uncertainty modeled by incomplete multiple prior preferences. In interior effcient allocations, agents share a common risk-adjusted prior and use the same 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. We show that the set of equilibria with inertia contains the equilibria of the economy with variational preferences anchored at the initial endowments. A case study in an economy without aggregate uncertainty shows that risk is fully insured, while uncertainty can remain fully uninsured. Pessimistic agents with Gilboa-Schmeidler's max-min preferences would fully insure risk and uncertainty

JEL codes

  • D51: Exchange and Production Economies
  • D81: Criteria for Decision-Making under Risk and Uncertainty
  • D91: Intertemporal Household Choice • Life Cycle Models and Saving