Roy Radner
| Roy Radner | |
|---|---|
| Born |
29 June 1927 Chicago |
| Nationality | American |
| Fields | Mathematical economics |
| Institutions | University of California, Berkeley |
| Alma mater | University of Chicago |
| Doctoral advisor | Leonard Jimmie Savage |
| Doctoral students |
Gregory Duncan Mukul Majumdar Victor Yohai |
Roy Radner (born 29 June 1927) is Leonard N. Stern School Professor of Business at New York University. He is a micro-economic theorist. Previously he was a faculty member at the University of California, Berkeley, and a Distinguished Member of Technical Staff at AT&T Bell Laboratories.
Among his various contributions, the one that bears his name. Radner equilibrium (1968) is a model of financial markets. This model is now the foundation for what became branch of economic theory and finance in its own right: incomplete markets. Roy Radner constructs a coherent model of rational expectation where trading and uncertainty become explicit. This differs from traditional complete markets general equilibrium model, where value and value alone decides budget feasibility. The traditional approach simplifies the theory as value is additive, and all trading details become hidden and implicit.
In the traditional approach if the value of an asset or a contingent claim is affordable then it can be achieved. Not so with incomplete market as the payoff has to be replicable by trading of available assets that are now part of the definition of the economy. The first consequence of such a requirement is that budget sets do not fill the available space and are typically smaller than hyperplanes. Because the dimension of vectors orthogonal to the budget set is larger than one there is no reason for the price systems supporting an equilibrium to be unique up to scaling, likewise the first order conditions no longer implies that gradient of agents are collinear at equilibrium. Both happen to fail to hold generically: the first theorem of welfare economics is hence the first victim of incompleteness. Pareto-optimality of equilibria generally does not hold. In traditional complete markets any policy would be undone through trading of rational expectation agents. This is no longer the case with incomplete markets as such policy-neutralising trading is no longer necessarily possible. Various policies (tax-related, monetary, etc. ) have an effect when introduced when markets are incomplete. Additionally incompleteness opens the door for a theory of financial innovation with real impact. This was not possible in the traditional complete market general equilibrium model as any contingent claim could be replicated by trading and financial innovation would have no real effect.
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