Are Sunspots Inevitable?
Christophe Prechac and
Aditya Goenka ()
No 786, Econometric Society 2004 Far Eastern Meetings from Econometric Society
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 E32 G10 D60 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:786
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