Are Sunspots Inevitable?
This paper examines the welfare of consumers in an incomplete markets economy with extrinsic uncertainty. It is shown that the utility of one consumer may be minimized at the Walrasian allocation relative to all other equilibrium allocations for a given security structure. Thus, this consumer will have no incentive to trade the new securities if they complete the insurance markets.
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- Karl Shell & Aditya Goenka, 1996. "When sunspots don't matter (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 169-178.
- David Cass & Alessandro Citanna, 1998.
"Pareto Improving Financial Innovation in Incomplete Markets,"
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- Duffie Darrell & Rahi Rohit, 1995. "Financial Market Innovation and Security Design: An Introduction," Journal of Economic Theory, Elsevier, vol. 65(1), pages 1-42, February.
- Miles S. Kimball, 1989.
"Precautionary Saving in the Small and in the Large,"
NBER Working Papers
2848, National Bureau of Economic Research, Inc.
- Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
- Balasko, Yves, 1983. "Extrinsic uncertainty revisited," Journal of Economic Theory, Elsevier, vol. 31(2), pages 203-210, December.
- Balasko, Yves & Cass, David, 1989. "The Structure of Financial Equilibrium with Exogenous Yields: The Case of Incomplete Markets," Econometrica, Econometric Society, vol. 57(1), pages 135-62, January.
- Elul Ronel, 1995. "Welfare Effects of Financial Innovation in Incomplete Markets Economies with Several Consumption Goods," Journal of Economic Theory, Elsevier, vol. 65(1), pages 43-78, February.
- Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
- Ronel Elul, 1999. "Welfare-improving financial innovation with a single good," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(1), pages 25-40.
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