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Existence of Sunspot Equilibria and Uniqueness of Spot Market Equilibria: The Case of Intrinsically Complete Markets

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  • Thorsten Hens
  • Beate Pilgrim
  • Janos Mayer
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    Abstract

    We consider economies with additively separable utility functions and give conditions for the two-agents case under which the existence of sunspot equilibria is equivalent to the occurrence of the transfer paradox. This equivalence enables us to show that sunspots cannot matter if the initial economy has a unique spot market equilibrium and there are only two commodities or if the economy has a unique equilibrium for all distributions of endowments induced by asset trade. For more than two agents the equivalence breaks and we give an example for sunspot equilibria even though the economy has a unique equilibrium for all distributions of endowments induced by asset trade.

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    Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 188.

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    Handle: RePEc:zur:iewwpx:188

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    Keywords: Sunspot Equilibria; Transfer Paradox;

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    1. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, Econometric Society, vol. 38(3), pages 387-92, May.
    2. Forges, Francoise & Peck, James, 1995. "Correlated Equilibrium and Sunspot Equilibrium," Economic Theory, Springer, Springer, vol. 5(1), pages 33-50, January.
    3. Gottardi, Piero & Kajii, Atsushi, 1999. "The Structure of Sunspot Equilibria: The Role of Multiplicity," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(3), pages 713-32, July.
    4. Lahiri, Sajal & Raimondos, Pascalis, 1995. "Welfare effects of aid under quantitative trade restrictions," Journal of International Economics, Elsevier, Elsevier, vol. 39(3-4), pages 297-315, November.
    5. Hens, Thorsten & Laitenberger, Jorg & Loffler, Andreas, 2002. "Two remarks on the uniqueness of equilibria in the CAPM," Journal of Mathematical Economics, Elsevier, vol. 37(2), pages 123-132, April.
    6. Gollier, Christian & Pratt, John W, 1996. "Risk Vulnerability and the Tempering Effect of Background Risk," Econometrica, Econometric Society, Econometric Society, vol. 64(5), pages 1109-23, September.
    7. 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.
    8. Galor, O & Polemarchakis, H M, 1987. "Intertemporal Equilibrium and the Transfer Paradox," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 54(1), pages 147-56, January.
    9. Geanakoplos, John & Heal, Geoffrey, 1983. "A geometric explanation of the transfer paradox in a stable economy," Journal of Development Economics, Elsevier, Elsevier, vol. 13(1-2), pages 223-236.
    10. E. Eisenberg, 1961. "Aggregation of Utility Functions," Management Science, INFORMS, INFORMS, vol. 7(4), pages 337-350, July.
    11. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521266550.
    12. Kehoe, Timothy J., 1991. "Computation and multiplicity of equilibria," Handbook of Mathematical Economics, Elsevier, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 38, pages 2049-2144 Elsevier.
    13. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, Elsevier, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
    14. Dierker, Egbert, 1972. "Two Remarks on the Number of Equilibria of an Economy," Econometrica, Econometric Society, Econometric Society, vol. 40(5), pages 951-53, September.
    15. Jeanne, Olivier & Masson, Paul R, 1998. "Currency Crises, Sunspots and Markov-Switching Regimes," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1990, C.E.P.R. Discussion Papers.
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