Indivisibilities, Lotteries and Sunspot Equilibria
AbstractWe 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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Date of creation: 08 Dec 2010
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Other versions of this item:
- Shell, Karl & Wright, Randall, 1993. "Indivisibilities, Lotteries, and Sunspot Equilibria," Economic Theory, Springer, Springer, vol. 3(1), pages 1-17, January.
- Karl Shell & Randall Wright, 1991. "Indivisibilities, lotteries, and sunspot equilibria," Staff Report, Federal Reserve Bank of Minneapolis 133, Federal Reserve Bank of Minneapolis.
- NEP-ALL-2010-12-18 (All new papers)
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