Chapter 20 Equilibrium under uncertainty

This chapter reviews several concepts of equilibrium that have appeared in the recent literature on markets and uncertainty and focuses on various theories of equilibrium under uncertainty in a sequence of markets, in the absence of complete forward markets for contingent delivery. A stationary state is in full equilibrium, not merely when demands equal supplies at the currently established prices but also when the same prices continue to rule at all dateswhen prices are constant over time. The test of equilibrium over time is considered to be more important than mere arithmetical sameness or difference, noting that it implies constant prices in a stationary economy but does not necessarily implies constant prices in an economy subject to change. The ArrowDebreu model provides a solid foundation of equilibrium analysis upon which to build. Modern decision theory and probability theory enable dealing more effectively with the issues raised by uncertainty and with the conceptual problems of describing an economy that is both stationary and subject to change.