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Sunspot Equilibria In A Production Economy: Do Rational Animal Spirits Cause Overproduction?

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  • ATSUSHI KAJII

Abstract

We study a standard two period economy with one nominal bond and one firm. The input of the firm is done in the first period and financed with the nominal bond, and its profits are distributed to the shareholders in the second period. We show that a sunspot equilibrium exists around each efficient equilibrium. The interest rate is lower than optimal and there is over production in sunspot equilibria, under some conditions. But a sunspot equilibrium does not exist if the profit share can be traded as well as the bond.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-5876.2008.00469.x
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Bibliographic Info

Article provided by Japanese Economic Association in its journal Japanese Economic Review.

Volume (Year): 60 (2009)
Issue (Month): 1 ()
Pages: 35-54

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Handle: RePEc:bla:jecrev:v:60:y:2009:i:1:p:35-54

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  1. Gottardi, Piero & Kajii, Atsushi, 1999. "The Structure of Sunspot Equilibria: The Role of Multiplicity," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 713-32, July.
  2. Atsushi Kajii, 2006. "Welfare Gains and Losses in Sunspot Equilibria," KIER Working Papers 624, Kyoto University, Institute of Economic Research.
  3. Atsushi Kajii, 1997. "On the Role of Options in Sunspot Equilibria," Econometrica, Econometric Society, vol. 65(4), pages 977-986, July.
  4. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  5. Goenka, Aditya & Prechac, Christophe, 2006. "Stabilizing sunspots," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 544-555, August.
  6. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer, vol. 11(3), pages 495-521.
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