WELFARE GAINS AND LOSSES IN SUNSPOT EQUILIBRIA*

Atsushi Kajii

The Japanese Economic Review, 2007, vol. 58, issue 3, 329-344

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.

Date: 2007
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https://doi.org/10.1111/j.1468-5876.2007.00418.x

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Working Paper: Welfare Gains and Losses in Sunspot Equilibria (2006)
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