[What can we say about the competitive equilibrium price system for an uncertain economy in which each risk concerns just one individual? Three interrelated concepts of equilibrium are considered. They show how and under which conditions the contingent price for a contract to deliver one unit of some good if some event occurs tends to be equal to the product of the sure price of the good and the probability of the event.]

Considering first the case of a known autocorrelation coefficient $, Klein observes that (4) may be viewed as a structural linear relation between the latent variables yt' -et, xI and yt'-l -et-,. Even knowing $, two of those variables are not observable. But the y' and yt' may be computed; et and et-, may be considered as errors of observation of the corresponding latent variables. In comparison with the classical models containing errors in variables, (4) is somewhat particular. Indeed, the value of the third variable (yt'_l) in observation t is identical to the value of the first variable (yt) in observation t -1. If we write qt and Qt for the latent variables corresponding respectively to yt and yI-1, we should take into account that tt 1tsince both are equal to yt'-l -et -. Now, Klein's method for the estimation of cx and A amounts to applying the maximum likelihood procedure as if Qt were not necessarily equal to qt-l

Given any problem of decision under risk to which the expected utility hypothesis applies, one may associate to it first a riskless problem in which random disturbances are replaced by their expected values, and second a class of intermediate risky problems with decreasing degrees of uncertainty. In this class the optimal decision depends in principle on the degree of uncertainty but turns out to be independent of it, to the first order of approximation, in the neighborhood of the riskless problem. The first-order certainty equivalence explains why it is so difficult to characterize the situations in which an increase in the degree of uncertainty requires a decrease in the allocation of resources to the risky projects. (Author)