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Welfare Gains and Losses in Sunspot Equilibria

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Author Info
Atsushi Kajii () (Institute of Economic Research, Kyoto University)

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Abstract

We study a standard two period exchange economy with one nominal asset. As is well known there is a continuum of sunspot equilibria around each efficient equilibrium. A sunspot equilibrium is inefficient but some household may gain in sunspot equilibria relative to the efficient equilibrium. We show that a household’s equilibrium utility level is either locally maximized or locally minimized at the efficient equilibrium, and derive a condition which identifies whether or not a household’s utility is locally minimized or maximized.

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File URL: http://www.kier.kyoto-u.ac.jp/DP/DP624.pdf
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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 624.

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Length: 21pages
Date of creation: Oct 2006
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Handle: RePEc:kyo:wpaper:624

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  1. Suda, Shinichi & Tallon, Jean-Marc & Villanacci, Antonio, 1992. "Real Indeterminacy of Equilibria in a Sunspot Economy with Inside Money," Economic Theory, Springer, vol. 2(3), pages 309-19, July.
  2. Gottardi, Piero & Kajii, Atsushi, 1999. "The Structure of Sunspot Equilibria: The Role of Multiplicity," Review of Economic Studies, Blackwell Publishing, vol. 66(3), pages 713-32, July. [Downloadable!] (restricted)
  3. 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)
  4. Goenka, Aditya & Prechac, Christophe, 2006. "Stabilizing sunspots," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 544-555, August. [Downloadable!] (restricted)
  5. Pietra, Tito, 1992. "The Structure of the Set of Sunspot Equilibria in Economies with Incomplete Financial Markets," Economic Theory, Springer, vol. 2(3), pages 321-40, July.
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  6. Cass, David, 1992. "Sunspots and Incomplete Financial Markets: The General Case," Economic Theory, Springer, vol. 2(3), pages 341-58, July.
  7. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer, vol. 11(3), pages 495-521. [Downloadable!] (restricted)
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  1. Atsushi Kajii, 2008. "Sunspot Equilibria in a Production Economy: Do Rational Animal Spirits Cause Overproduction?," KIER Working Papers 655, Kyoto University, Institute of Economic Research. [Downloadable!]
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