Sunspots, Indeterminacy and Pareto Inefficiency in Economies With Incomplete Markets

Tito Pietra

A chapter in Essays in Dynamic General Equilibrium Theory, 2005, pp 181-201 from Springer

Abstract: Summary 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, whenever there are sunspot equilibria, typically there are also sunspot equilibria Pareto dominating the sunspot-invariant equilibria under the same restriction on the number of agents (and stronger restrictions on the number of commodities).

Keywords: Utility Function; Asset Price; Full Rank; Asset Market; Incomplete Market (search for similar items in EconPapers)
Date: 2005
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Journal Article: Sunspots, indeterminacy and Pareto inefficiency in economies with incomplete markets (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:spr:steccp:978-3-540-27192-5_8

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DOI: 10.1007/3-540-27192-9_8

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