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Sunspots, Indeterminacy and Pareto Inefficiency in Economies With Incomplete Markets

In: Essays in Dynamic General Equilibrium Theory

Author

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  • Tito Pietra

    (Universita’ G.D’Annunzio)

Abstract

Summary We consider two periods economies with both intrinsic and extrinsic uncertainty. Asset markets are incomplete in the certainty economy. If assets are nominal, there are enough commodities and the number of agents is greater than two and smaller than the total number of states of nature “tomorrow” (minus one), then a sunspot-invariant equilibrium is generically Pareto dominated by some sunspot equilibria. When assets are real, and there are enough commodities, whenever there are sunspot equilibria, typically there are also sunspot equilibria Pareto dominating the sunspot-invariant equilibria under the same restriction on the number of agents (and stronger restrictions on the number of commodities).

Suggested Citation

  • Tito Pietra, 2005. "Sunspots, Indeterminacy and Pareto Inefficiency in Economies With Incomplete Markets," Studies in Economic Theory, in: Alessandro Citanna & John Donaldson & Herakles Polemarchakis & Paolo Siconolfi & Stephan E. Spear (ed.), Essays in Dynamic General Equilibrium Theory, pages 181-201, Springer.
    • Handle: RePEc:spr:steccp:978-3-540-27192-5_8
    DOI: 10.1007/3-540-27192-9_8
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