What is ‘Radner Equilibrium’
A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then even in the face of uncertainty about the economic environment, an optimal allocation of resources based on competitive equilibrium can be achieved. Radner Equilibrium was introduced by American economist Roy Radner in 1968, and explores the condition of competitive equilibrium under uncertainty.
Explaining ‘Radner Equilibrium’
The theory also states that in such a world there would be no role for money and liquidity. And the introduction of information (such as the introduction of spot markets and futures markets) about the behavior of other decision makers introduces externalities among the sets of actions available to them. This generates a demand for liquidity, which also arises from computational limitations. The theory notes that uncertainty about the environment greatly complicates a decision problem, thereby indirectly contributing to the demand for liquidity.
Further Reading
- On the existence of an Arrow-Radner equilibrium in the case of complete markets. A remark – pubsonline.informs.org [PDF]
- Existence of Arrow–Radner equilibrium with endogenously complete markets under incomplete information – www.sciencedirect.com [PDF]
- Implementing Arrow-Debreu equilibria by continuous trading of few long-lived securities – www.worldscientific.com [PDF]
- Existence of a Radner equilibrium in a model with transaction costs – link.springer.com [PDF]
- Equilibrium in economies with incomplete financial markets – www.sciencedirect.com [PDF]
- Existence of financial equilibria in continuous time with potentially complete markets – www.sciencedirect.com [PDF]
- Radner equilibrium in incomplete Lévy models – link.springer.com [PDF]
- Uniqueness of Arrow-Debreu and Arrow-Radner equilibrium when utilities are additively separable – link.springer.com [PDF]
- Existence of equilibrium in incomplete markets with intermediation costs – www.sciencedirect.com [PDF]
