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Welfare Gains And Losses In Sunspot Equilibria

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  • ATSUSHI KAJII

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 households 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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  • Atsushi Kajii, 2007. "Welfare Gains And Losses In Sunspot Equilibria," The Japanese Economic Review, Japanese Economic Association, vol. 58(3), pages 329-344, September.
    • Handle: RePEc:bla:jecrev:v:58:y:2007:i:3:p:329-344
    DOI: 10.1111/j.1468-5876.2007.00418.x
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    1. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 495-521.
    2. Pietra, Tito, 1992. "The Structure of the Set of Sunspot Equilibria in Economies with Incomplete Financial Markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(3), pages 321-340, July.
    3. Cass, David, 1992. "Sunspots and Incomplete Financial Markets: The General Case," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(3), pages 341-358, July.
    4. Suda, Shinichi & Tallon, Jean-Marc & Villanacci, Antonio, 1992. "Real Indeterminacy of Equilibria in a Sunspot Economy with Inside Money," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(3), pages 309-319, July.
    5. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
    6. Goenka, Aditya & Prechac, Christophe, 2006. "Stabilizing sunspots," Journal of Mathematical Economics, Elsevier, vol. 42(4-5), pages 544-555, August.
    7. David Cass, 1989. "Sunspots and Incomplete Financial Markets: The Leading Example," Palgrave Macmillan Books, in: George R. Feiwel (ed.), The Economics of Imperfect Competition and Employment, chapter 25, pages 677-693, Palgrave Macmillan.
    8. Piero Gottardi & Atsushi Kajii, 1999. "The Structure of Sunspot Equilibria: The Role of Multiplicity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(3), pages 713-732.
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    Cited by:

    1. Atsushi Kajii, 2009. "Sunspot Equilibria In A Production Economy: Do Rational Animal Spirits Cause Overproduction?," The Japanese Economic Review, Japanese Economic Association, vol. 60(1), pages 35-54, March.
    2. Kang, Minwook, 2015. "Price-level volatility and welfare in incomplete markets with sunspots," Journal of Mathematical Economics, Elsevier, vol. 56(C), pages 58-66.
    3. Akira Okada, 2009. "Announcement," The Japanese Economic Review, Japanese Economic Association, vol. 60(1), pages 33-34.

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