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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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Bibliographic Info

Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt6x37686b.

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Date of creation: 07 Oct 1999
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Handle: RePEc:cdl:ucsbec:qt6x37686b

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Keywords: Characterization; Robust; Sunspot; Equilibria;

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References

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  1. Rod Garratt, 2010. "Decentralizing Lottery Allocations in Markets With Indivisible Commodities," Levine's Working Paper Archive 2087, David K. Levine.
  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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 1-20, February.
  3. Gaetano Antinolfi & Todd Keister, 1998. "Options and sunspots in a simple monetary economy," Economic Theory, Springer, Springer, vol. 11(2), pages 295-315.
  4. Edward C Prescott & Robert M Townsend, 2010. "Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard," Levine's Working Paper Archive 2069, David K. Levine.
  5. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 193-227, April.
  6. Garratt, Rod & Keister, Todd & Qin, Cheng-Zhong & Shell, Karl, 2002. "Equilibrium Prices When the Sunspot Variable Is Continuous," Journal of Economic Theory, Elsevier, Elsevier, vol. 107(1), pages 11-38, November.
  7. Karl Shell & Aditya Goenka, 1997. "Robustness of sunspot equilibria," Economic Theory, Springer, Springer, vol. 10(1), pages 79-98.
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Cited by:
  1. Prescott, Edward & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Working Papers, Cornell University, Center for Analytic Economics 02-08, Cornell University, Center for Analytic Economics.

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