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Existence of Sunspot Equilibria and Uniqueness of Spot Market Equilibria: The Case of Intrinsically Complete Markets

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Book cover Essays in Dynamic General Equilibrium Theory

Part of the book series: Studies in Economic Theory ((ECON.THEORY,volume 20))

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Summary

We consider economies with additively separable utility functions and give conditions for the two-agents case under which the existence of sunspot equilibria is equivalent to the occurrence of the transfer paradox. This equivalence enables us to show that sunspots cannot matter if the initial economy has a unique spot market equilibrium and there are only two commodities or if the economy has a unique equilibrium for all distributions of endowments induced by asset trade. For more than two agents the equivalence breaks and we give an example for sunspot equilibria even though the economy has a unique equilibrium for all distributions of endowments induced by asset trade.

We would like to thank Anke Gerber, Piero Gottardi, Andreu Mas-Colell and Mike Jerison for very fruitful discussions. Last but not least we are grateful to Klaus Schenk-Hoppé for his support in using MATLAB® and to Andreas Tupak for his help with the manuscript. All remaining errors are ours.

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Author information

Authors and Affiliations

  1. IEW, Department of Economics, University of Zurich, Switzerland

    Thorsten Hens

  2. IOR, Department of Economics, University of Zurich, Switzerland

    János Mayer

  3. Reuters AG, Frankfurt, Germany

    Beate Pilgrim

Authors
  1. Thorsten Hens
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  2. János Mayer
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  3. Beate Pilgrim
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Editor information

Editors and Affiliations

  1. Department of Economics and Finance, HEC, Paris, France

    Alessandro Citanna

  2. Finance and Economics Division, Graduate School of Business, Columbia University, New York, NY, 10027, USA

    Alessandro Citanna , John Donaldson  & Paolo Siconolfi ,  & 

  3. Department of Economics, Brown University, Providence, RI, 02912, USA

    Herakles Polemarchakis

  4. Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA, 15213, USA

    Stephan E. Spear

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Hens, T., Mayer, J., Pilgrim, B. (2005). Existence of Sunspot Equilibria and Uniqueness of Spot Market Equilibria: The Case of Intrinsically Complete Markets. In: Citanna, A., Donaldson, J., Polemarchakis, H., Siconolfi, P., Spear, S.E. (eds) Essays in Dynamic General Equilibrium Theory. Studies in Economic Theory, vol 20. Springer, Berlin, Heidelberg. https://doi.org/10.1007/3-540-27192-9_4

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