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

Frank Riedel (Universität Bielefeld)
Thursday, January 15, 2015 - 4:00pm
HU Berlin, Rudower Chaussee 25, 12489 Berlin, Room 1.115

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.

This is a joint work with Patrick Beissner.