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Indivisibilities, Lotteries, and Sunspot Equilibria

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Author Info
Shell, Karl
Wright, Randall

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Abstract

We analyze economies with indivisible commodities. There are two reasons for doing so. First, we extend and provide some new insights into sunspot equilibrium theory. Finite competitive economies with perfect markets and convex consumption sets do not allow sunspot equilibria; these same economies with nonconvex consumption sets do, and they have several properties that can never arise in convex environments. Second, we provide a reinterpretation of the employment lotteries used in contract theory and in macroeconomic models with indivisible labor. We show how socially optimal employment lotteries can be decentralized as competitive equilibria without lotteries once sunspots are introduced.

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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 3 (1993)
Issue (Month): 1 (January)
Pages: 1-17
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Handle: RePEc:spr:joecth:v:3:y:1993:i:1:p:1-17

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22. [Downloadable!]
    Other versions:
  2. Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March. [Downloadable!] (restricted)
  3. Gary D. Hansen & Thomas J. Sargent, 1987. "Straight Time and Overtime in Equilibrium," UCLA Economics Working Papers 455, UCLA Department of Economics. [Downloadable!]
    Other versions:
  4. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November. [Downloadable!] (restricted)
  5. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April. [Downloadable!] (restricted)
  6. Crawford, V. P. & Heller, W. P., 1979. "Fair division with indivisible commodities," Journal of Economic Theory, Elsevier, vol. 21(1), pages 10-27, August. [Downloadable!] (restricted)
  7. Bewley, Truman F., 1972. "Existence of equilibria in economies with infinitely many commodities," Journal of Economic Theory, Elsevier, vol. 4(3), pages 514-540, June. [Downloadable!] (restricted)
  8. Jeremy Greenwood & Gregory W. Huffman, 1988. "On Modelling the Natural Rate of Unemployment with Indivisible Labour," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 587-609, August. [Downloadable!] (restricted)
  9. Prescott, Edward C & Lucas, Robert E, Jr, 1972. "A Note on Price Systems in Infinite Dimensional Space," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(2), pages 416-22, June. [Downloadable!] (restricted)
  10. Greenwood, Jeremy & Huffman, Gregory W., 1987. "A dynamic equilibrium model of inflation and unemployment," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 203-228, March. [Downloadable!] (restricted)
  11. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, vol. 25(3), pages 380-396, December. [Downloadable!] (restricted)
  12. Peck, James & Shell, Karl, 1991. "Market Uncertainty: Correlated and Sunspot Equilibria in Imperfectly Competitive Economies," Review of Economic Studies, Blackwell Publishing, vol. 58(5), pages 1011-29, October. [Downloadable!] (restricted)
  13. Mas-Colell, Andreu, 1977. "Indivisible commodities and general equilibrium theory," Journal of Economic Theory, Elsevier, vol. 16(2), pages 443-456, December. [Downloadable!] (restricted)
  14. Martine Quinzii, 1982. "Core and Competitive Equilibria with Indivisibilities," Cowles Foundation Discussion Papers 644, Cowles Foundation, Yale University. [Downloadable!]
  15. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January. [Downloadable!] (restricted)
  16. Rogerson, Richard & Wright, Randall, 1988. "Involuntary unemployment in economies with efficient risk sharing," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 501-515. [Downloadable!] (restricted)
  17. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Blackwell Publishing, vol. 41(1), pages 37-50, January. [Downloadable!] (restricted)
  18. 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. [Downloadable!] (restricted)
  19. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December. [Downloadable!] (restricted)
  20. Hylland, Aanund & Zeckhauser, Richard, 1979. "The Efficient Allocation of Individuals to Positions," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 293-314, April. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bel? Jerez, 2000. "General Equilibrium with Asymmetric Information: a Dual Approach," UFAE and IAE Working Papers 510.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
    Other versions:
  2. Harold L. Cole & Edward C. Prescott, 1996. "Valuation equilibria with clubs," Staff Report 174, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  3. Bel? Jerez, 2001. "A Dual Characterization of Incentive Efficiency," UFAE and IAE Working Papers 494.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
    Other versions:
  4. Basu, Parantap & Renström, Thomas I, 2002. "When to Tax Labour?," CEPR Discussion Papers 3456, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Gary D. Hansen & Randall Wright, 1992. "The labor market in real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-12. [Downloadable!]
  6. Guillaume Rocheteau & Peter Rupert & Randall Wright, 2007. "Inflation and Unemployment in General Equilibrium," University of California at Santa Barbara, Economics Working Paper Series 07-07, Department of Economics, UC Santa Barbara. [Downloadable!]
  7. Terry J. Fitzgerald, 1996. "Work schedules, wages, and employment in a general equilibrium model with team production," Working Paper 9613, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  8. Guillaume Rocheteau & Peter Rupert & Karl Shell & Randall Wright, 2005. "General equilibrium with nonconvexities, sunspots, and money," Working Paper 0513, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  9. Timothy J. Kehoe & David K. Levine & Edward Prescott, 2000. "Lotteries, Sunspots and Incentive Constraints," Levine's Working Paper Archive 1974, UCLA Department of Economics. [Downloadable!]
    Other versions:
  10. Jess Benhabib & Randall Wright & Richard Rogerson, 1990. "Homework in Macoreconomics I: Basic Theory (Part I of II)," NBER Working Papers 3344, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. James Peck, 1995. "Competition in Transactions Mechanisms: The Emergence of Price Competition," Working Papers 022, Ohio State University, Department of Economics. [Downloadable!]
    Other versions:
  12. Edward C. Prescott, 2003. "Non-convexities in quantitative general equilibrium studies of business cycles," Staff Report 312, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  13. Edward C. Prescott & Richard Rogerson & Johanna Wallenius, 2007. "Lifetime aggregate labor supply with endogenous workweek length," Staff Report 400, Federal Reserve Bank of Minneapolis. [Downloadable!]
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