Efficiency Under Uncertainty and Non‐Convexity: Evaluating the Role of Probabilities

22 Pages Posted: 8 May 2020

See all articles by Jean‐Paul Chavas

Jean‐Paul Chavas

University of Maryland

Walter Briec

University of Perpignan

Date Written: October 2019

Abstract

This paper investigates the economics of uncertainty using a state‐contingent approach with a focus on the role of non‐convexity. Under efficiency, the slopes of a separating hypersurface measures state‐contingent prices. As argued by Yaari, normalized state‐contingent prices provide a measure of subjective probabilities. But efficiency under non‐convexity can require non‐linear pricing. The analysis identifies non‐convexity conditions under which probability assessments are not appropriate. Implications for economic and welfare analysis under uncertainty are discussed.

Suggested Citation

Chavas, Jean‐Paul and Briec, Walter, Efficiency Under Uncertainty and Non‐Convexity: Evaluating the Role of Probabilities (October 2019). Economica, Vol. 86, Issue 344, pp. 832-853, 2019, Available at SSRN: https://ssrn.com/abstract=3595576 or http://dx.doi.org/10.1111/ecca.12293

Jean‐Paul Chavas (Contact Author)

University of Maryland

Walter Briec

University of Perpignan ( email )

52, avenue de Villeneuve
Perpignan 66860
France
+33 468662264 (Phone)
+33 468662217 (Fax)

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