Download this Paper Open PDF in Browser

Non-Implementability of Arrow-Debreu Equilibria by Continuous Trading under Knightian Uncertainty

29 Pages Posted: 25 Sep 2014 Last revised: 8 Nov 2014

Frank Riedel

Bielefeld University - Center for Mathematical Economics

Patrick Beissner

Bielefeld University - Center for Mathematical Economics

Date Written: September 18, 2014

Abstract

Under risk, Arrow-Debreu equilibria can be implemented as Radner equilibria by continuous trading of few long-lived securities. We show that this result generically fails if there is Knightian uncertainty in the volatility. Implementation is only possible if all discounted net trades of the equilibrium allocation are mean ambiguity-free.

Keywords: Knightian Uncertainty, Ambiguity, General Equilibrium, Asset Pricing, Radner Equilibrium

JEL Classification: D81, C61, G11

Suggested Citation

Riedel, Frank and Beissner, Patrick, Non-Implementability of Arrow-Debreu Equilibria by Continuous Trading under Knightian Uncertainty (September 18, 2014). Institute of Mathematical Economics Working Paper No. 527. Available at SSRN: https://ssrn.com/abstract=2500793 or http://dx.doi.org/10.2139/ssrn.2500793

Frank Riedel

Bielefeld University - Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Patrick Beissner (Contact Author)

Bielefeld University - Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Paper statistics

Downloads
105
Rank
217,122
Abstract Views
438