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Comparing Sunspot Equilibrium and Lottery Equilibrium Allocations: The Finite Case

Rodney Garratt (), Todd Keister () and Karl Shell ()

Working Papers from Cornell University, Center for Analytic Economics

Abstract: Sunspot equilibrium and lottery equilibrium are two stochastic solution concepts for nonstochastic economies. Recent work by Garratt, Keister, Qin, and Shell (in press) and Kehoe, Levine, and Prescott (in press) on nonconvex exchange economies has shown that when the randomizing device is continuous, applying the two concepts to the same fundamental economy yields the same set of equilibrium allocations. In the present paper, we examine economies based on a discrete randomizing device. We extend the lottery model so that it can constrain the randomization possibilities available to agents in the same way that the sunspots model can. Every equilibrium allocation of our generalized lottery model has a corresponding sunspot equilibrium allocation. For almost all discrete randomizing devices, the converse is also true. There are exceptions, however: for some randomizing devices, there exist sunspot equilibrium allocations with no lottery equilibrium counterpart.

Date: 2002-07
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