Nancy Seminar – Jean-Marc Tallon (PSE)

Event details :

“Sharing Model Uncertainty” with Chiaki Hara, Sujoy Mukerji, Frank Riedel

Abstract: We study efficient allocations when consumers have heterogeneous smooth ambiguity preferences with a common, point-identified, set of relevant probability measures. Furthermore, aggregate endowment is ambiguous. We characterize economies where the representative consumer is also of the smooth ambiguity type and find efficient sharing rules in these economies. With heterogeneous ambiguity aversion, sharing rules exhibit systematic departures from those that obtain in vNM-economies. The representative consumer’s nature departs from the typical single-agent assumption, making for more compelling asset-pricing predictions. The insights extend to the case where models are only set-identified.