Market Uncertainty: Correlated and Sunspot Equilibria in Imperfectly Competitive Economies

James Peck and Karl Shell ()

The Review of Economic Studies, 1991, vol. 58, issue 5, 1011-1029

Abstract: An imperfectly competitive economy is very prone to market uncertainty, including uncertainty about the liquidity (or "thickness") of markets. We show, in particular, that there exist stochastic equilibrium outcomes in nonstochastic market games if (and only if) the endowments are not Pareto optimal. We also provide a link between extrinsic uncertainty arising in games (e.g. correlated equilibria) and extrinsic uncertainty in market economies (e.g. sunspot equilibria). A correlated equilibria to the market game is either a sunspot equilibrium or a non-sunspot equilibrium to the related securities games, but the converse is not true in general.

Date: 1991
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