Are Sunspots Inevitable?

Christophe Prechac and Aditya Goenka

No 786, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: 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.

Keywords: Sunspot equilibrium; incomplete markets; financial innovation; welfare analysis. (search for similar items in EconPapers)
JEL-codes: D52 D60 E32 G10 (search for similar items in EconPapers)
Date: 2004-08-11
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:786

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