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Sunspots, indeterminacy and Pareto inefficiency in economies with incomplete markets


  • Tito Pietra



We consider two periods economies with both intrinsic and extrinsic uncertainty. Asset markets are incomplete in the certainty economy. If assets are nominal, there are enough commodities and the number of agents is greater than two and smaller than the total number of states of nature “tomorrow” (minus one), then a sunspot-invariant equilibrium is generically Pareto dominated by some sunspot equilibria. When assets are real, and there are enough commodities, if there are sunspot equilibria, there are sunspot equilibria Pareto dominating sunspot-invariant equilibria under the same restriction on the number of agents (and stronger restrictions on the number of commodities). Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Tito Pietra, 2004. "Sunspots, indeterminacy and Pareto inefficiency in economies with incomplete markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(3), pages 687-699, October.
  • Handle: RePEc:spr:joecth:v:24:y:2004:i:3:p:687-699
    DOI: 10.1007/s00199-004-0517-1

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    Cited by:

    1. M. Salto & T. Pietra, 2013. "Welfare and excess volatility of exchange rates," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 501-529, March.
    2. Mendolicchio, Concetta & Pietra, Tito, 2016. "A re-examination of constrained Pareto inefficiency in economies with incomplete markets," IAB Discussion Paper 201612, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    3. Mendolicchio, C. & Pietra, T., 2016. "Endowment redistribution and Pareto improvements in GEI economies," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 181-190.
    4. Guido Cazzavillan & Patrick A. Pintus, 2006. "Endogenous business cycles and dynamic inefficiency," International Journal of Economic Theory, The International Society for Economic Theory, vol. 2(3-4), pages 279-294.

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    Sunspots; Real indeterminacy; Efficiency.;


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