Radner Equilibrium


DEFINITION of '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.

BREAKING DOWN '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.

  1. Risk Analysis

    The study of the underlying uncertainty of a given course of ...
  2. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it ...
  3. Equilibrium

    The state in which market supply and demand balance each other ...
  4. Welfare Economics

    A branch of economics that focuses on the optimal allocation ...
  5. Neoclassical Economics

    An approach to economics that relates supply and demand to an ...
  6. Put-Call Parity

    A principle that defines the relationship between the price of ...
Related Articles
  1. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  2. Investing Basics

    What Does In Specie Mean?

    In specie describes the distribution of an asset in its physical form instead of cash.
  3. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  4. Fundamental Analysis

    Emerging Markets: Analyzing Colombia's GDP

    With a backdrop of armed rebels and drug cartels, the journey for the Colombian economy has been anything but easy.
  5. Fundamental Analysis

    Emerging Markets: Analyzing Chile's GDP

    Chile has become one of the great economic success stories of Latin America.
  6. Investing

    Watch Your Duration When Rates Rise

    While recent market volatility is leading investors to look for the nearest exit, here are some suggestions for bond exposure in attractive sectors.
  7. Economics

    Explaining Fair Market Value

    Fair market value is the price at which a buyer and seller are willing to exchange a good.
  8. Economics

    Explaining Capital Flows

    The movement of money for investing, trade or business production, is commonly referred to as capital flows.
  9. Economics

    Understanding Production Efficiency

    Production efficiency is the point at which an economy cannot increase output of a good or service without lowering the production of another product.
  10. Investing

    Yellow Light Trade Risk Management

    Being in the stock market for so long I tend to look at the world through the eyes of a trader, but how to decide when we are presented with two options?
  1. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
  2. How can the federal reserve increase aggregate demand?

    The Federal Reserve can increase aggregate demand in indirect ways by lowering interest rates. Aggregate demand is a measure ... Read Full Answer >>
  3. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  4. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  5. What bond indexes follow the supply and demand for junk bonds?

    Bond indexes that track junk bonds include the Merrill Lynch High Yield Master II Index and the S&P U.S. High Yield Corporate ... Read Full Answer >>
  6. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!