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Robustness of sunspot equilibria

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Author Info

  • Karl Shell

    (Department of Economics, Cornell University, 402 Uris Hall, Ithaca NY 14853-7601, USA)

  • Aditya Goenka

    (Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, UK)

Abstract

A sunspot equilibrium (SSE) is based on some extrinsic randomizing device (RD). We analyze the robustness of SSE. (1) We say that an SSE allocation is robust to refinements if it is also an SSE allocation based on any refinement of its RD. (2) We introduce two core concepts for analyzing the robustness of SSE in the face of cooperative-coalition formation. In the first, the blocking allocations are based on the RD that defines the SSE. In the second (stronger) core concept, coalitions select their own RDs. For the convex economy with restricted market participation, SSE allocations are robust under each of the definitions and the cores converge on replication of the economy to the set of SSE allocations. For the economy with an indivisible good, SSE allocations are not always robust. We provide examples of each of the following: (i) an SSE allocation that is not robust to refinement, (ii) an SSE allocation that is in neither core, (iii) an SSE allocation that is in the first core, but not in the second, and (iv) a core that does not converge upon replication to the set of SSE allocations.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 10 (1997)
Issue (Month): 1 ()
Pages: 79-98

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Handle: RePEc:spr:joecth:v:10:y:1997:i:1:p:79-98

Note: Received: July 31, 1995; revised version August 30, 1996
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Citations

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Cited by:
  1. FORGES, Françoise & MINELLI, Enrico & VOHRA, Rajiv, 2001. "Incentives and the core of an exchange economy: a survey," CORE Discussion Papers 2001043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Bhattacharya, Joydeep & Guzman, Mark G. & Shell, Karl, 2009. "Price Level Volatility: A Simple Model of Money Taxes and Sunspots," Staff General Research Papers 5167, Iowa State University, Department of Economics.
  3. Prescott, Edward & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Working Papers 02-08, Cornell University, Center for Analytic Economics.
  4. 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.
  5. Rajiv Vohra, 1997. "Incomplete Information, Incentive Compatibility and the Core," Working Papers 97-11, Brown University, Department of Economics.
  6. repec:fth:calaec:12-99 is not listed on IDEAS
  7. Geoffroy de Clippel, 2004. "The Type-Agent Core for Exchange Economies with Asymmetric Information," Working Papers 2004-18, Brown University, Department of Economics.
  8. Shurojit Chatterji & Subir Chattopadhyay, 2002. "Functional Sunspot Equilibria," Working Papers 0201, Centro de Investigacion Economica, ITAM, revised Nov 2003.
  9. Garratt, Rod & Keister, Todd, 1999. "A Characterization of Robust Sunspot Equilibria," University of California at Santa Barbara, Economics Working Paper Series qt6x37686b, Department of Economics, UC Santa Barbara.
  10. Aditya Goenka & Stefano Matta, 2008. "Manipulation of endowments and sunspot equilibria," Economic Theory, Springer, vol. 36(2), pages 267-282, August.

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