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Indivisibilities, Lotteries and Sunspot Equilibria

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  • Karl Shell
  • Randall Wright

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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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 2061.

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Date of creation: 08 Dec 2010
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Handle: RePEc:cla:levarc:2061

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  1. Peck, James & Shell, Karl, 1991. "Market Uncertainty: Correlated and Sunspot Equilibria in Imperfectly Competitive Economies," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(5), pages 1011-29, October.
  2. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(2), pages 416-22, June.
  3. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 41(1), pages 37-50, January.
  4. Gary D. Hansen & Thomas J. Sargent, 1987. "Straight Time and Overtime in Equilibrium," UCLA Economics Working Papers, UCLA Department of Economics 455, UCLA Department of Economics.
  5. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 25(1), pages 11-44, January.
  6. Jeremy Greenwood & Gregory W. Huffman, 1988. "On Modelling the Natural Rate of Unemployment with Indivisible Labour," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 21(3), pages 587-609, August.
  7. Greenwood, Jeremy & Huffman, Gregory W., 1987. "A dynamic equilibrium model of inflation and unemployment," Journal of Monetary Economics, Elsevier, Elsevier, vol. 19(2), pages 203-228, March.
  8. 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.
  9. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  10. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  11. Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March.
  12. Rogerson, Richard & Wright, Randall, 1988. "Involuntary unemployment in economies with efficient risk sharing," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(3), pages 501-515.
  13. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  14. Cass, D. & Polemarchakis, H.M., . "Convexity and sunspots: a remark," CORE Discussion Papers RP -913, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  15. Crawford, V. P. & Heller, W. P., 1979. "Fair division with indivisible commodities," Journal of Economic Theory, Elsevier, Elsevier, vol. 21(1), pages 10-27, August.
  16. 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.
  17. Bewley, Truman F., 1972. "Existence of equilibria in economies with infinitely many commodities," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(3), pages 514-540, June.
  18. Martine Quinzii, 1982. "Core and Competitive Equilibria with Indivisibilities," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 644, Cowles Foundation for Research in Economics, Yale University.
  19. Azariadis, Costas, 1981. "Self-fulfilling prophecies," Journal of Economic Theory, Elsevier, Elsevier, vol. 25(3), pages 380-396, December.
  20. Hylland, Aanund & Zeckhauser, Richard, 1979. "The Efficient Allocation of Individuals to Positions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(2), pages 293-314, April.
  21. Mas-Colell, Andreu, 1977. "Indivisible commodities and general equilibrium theory," Journal of Economic Theory, Elsevier, Elsevier, vol. 16(2), pages 443-456, December.
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