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This paper examines efficient allocations in economies where consumers
exhibit heterogeneous smooth ambiguity preferences and
face model uncertainty with a common set of identifiable models.
Aggregate endowment is ambiguous. We characterize economies
where the representative consumer is of the smooth ambiguity type
and derive efficient sharing rules. Heterogeneous ambiguity aversion
leads to sharing rules that systematically differ from those in
vNM-economies. The representative consumer’s ambiguity aversion
differs from that of the typical consumer; this leads to more
compelling asset-pricing predictions. We focus on point-identified
models but show that our insights extend to partially-identified
models.
