Sunspots, indeterminacy and Pareto inefficiency in economies with incomplete markets
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
Volume (Year): 24 (2004)
Issue (Month): 3 (October)
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