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A Characterization of Robust Sunspot Equilibria

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  • Garratt, Rod
  • Keister, Todd

Abstract

In nonconvex environments, a sunspot equilibrium can sometimes be destroyed by the introduction of new extrinsic information. We provide a simple test for determining whether or not a particular equilibrium survives, or is robust to, all possible re…nements of the state space. We use this test to provide a characterization of the set of robust sunspot-equilibrium allocations of a given economy: it is equivalent to the set of equilibrium allocations of the associated lottery economy.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 107 (2002)
Issue (Month): 1 (November)
Pages: 136-144

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Handle: RePEc:eee:jetheo:v:107:y:2002:i:1:p:136-144

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Web page: http://www.elsevier.com/locate/inca/622869

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  1. Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
  2. Prescott, Edward C & Townsend, Robert M, 1984. "General Competitive Analysis in an Economy with Private Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 1-20, February.
  3. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  4. Karl Shell & Aditya Goenka, 1997. "Robustness of sunspot equilibria," Economic Theory, Springer, vol. 10(1), pages 79-98.
  5. Garratt, Rod, 1995. "Decentralizing Lottery Allocations in Markets with Indivisible Commodities," Economic Theory, Springer, vol. 5(2), pages 295-313, March.
  6. Gaetano Antinolfi & Todd Keister, 1998. "Options and sunspots in a simple monetary economy," Economic Theory, Springer, vol. 11(2), pages 295-315.
  7. Garratt, Rod & Keister, Todd & Qin, Cheng-Zhong & Shell, Karl, 2002. "Equilibrium Prices When the Sunspot Variable Is Continuous," Journal of Economic Theory, Elsevier, vol. 107(1), pages 11-38, November.
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Cited by:
  1. Prescott, Edward C. & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Journal of Economic Theory, Elsevier, vol. 107(1), pages 1-10, November.

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