Skip to main content
SpringerLink
Log in

When sunspots don't matter

  • Exposita Notes
  • Published:
Economic Theory Aims and scope Submit manuscript

Summary

We show that a finite, competitive economy isimmune to sunspots if (i) preferences are strictly convex, (ii) the set of feasible allocations is convex, and (iii) the contingent-claims market is perfect. The conditions (i)–(ii) cover some, but not all, economies with nonconvex technologies. Based on an indivisible-good example, we show that even economies with strictly convex preferences and full insurance arenot in general immune from sunspots. We also show that (1) the sufficient conditions (i)–(iii) are not necessary for sunspot immunity and (2)ex-ante efficiency is not necessary for immunity from sunspots.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. Arrow, K. J., Hahn, F. H.: General competitive analysis. San Francisco: Holden-Day 1971

    Google Scholar 

  2. Balasko, Y.: Extrinsic uncertainty revisited. Journal of Economic Theory31, 203–201 (1983)

    Google Scholar 

  3. Cass, D., Polemarchakis, H. M.: Convexity and sunspots: A remark. Journal of Economic Theory52, 433–439 (1990)

    Google Scholar 

  4. Cass, D., Shell, K.: Do sunspots Matter? Journal of Political Economy91, 193–222 (1983)

    Google Scholar 

  5. Debreu, G.: Theory of value: An axiomatic analysis of economic equilibrium. New Haven: Cowles Foundation Monograph 17, Yale University Press 1959

    Google Scholar 

  6. Goenka, A.: Rationing and sunspot equilibria. Journal of Economic Theory64, 424–442 (1994)

    Google Scholar 

  7. Goenka, A.: Fiscal rules and extrinsic uncertainty. Economic Theory4, 401–416 (1994)

    Google Scholar 

  8. Guesnerie, R., Laffont, J. J.: Notes on sunspot equilibria in finite horizon models. In: Champsaur, P., (ed.) Essays in honour of Edmond Malinvaud, Vol. 1, Microeconomics. Cambridge: MIT Press 1990

    Google Scholar 

  9. Hansen, G.: Indivisible labor and the business cycle. Journal of Monetary Economy16, 309–328 (1985)

    Google Scholar 

  10. Préchac, C.: On the ineffectiveness of sunspots in incomplete markets. Economic Theory3, 585–588 (1993)

    Google Scholar 

  11. Rogerson, R.: Indivisible labor, lotteries, and equilibrium. Journal of Monetary Economy21, 3–16 (1988)

    Google Scholar 

  12. Shell, K.: Sunspot equilibrium. In: Eatwell, J., Milgate, M., Newman, P., (eds.) The new Palgrave: A dictionary of economics London: Macmillan 1987

    Google Scholar 

  13. Shell, K. Wright, R.: Indivisibilities, Lotteries, and sunspot equilibria. Economic Theory3, 1–17(1993)

    Google Scholar 

  14. Sorger, G.: Convexity and sunspots: Another remark. Journal of Economic Theory60, 439–442 (1993)

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, University of Essex, CO4 3SQ, Colchester, UK

    Aditya Goenka

  2. Department of Economics, Cornell University, 14853-7601, Ithaca, NY, USA

    Karl Shell

Authors
  1. Aditya Goenka
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Karl Shell
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Goenka, A., Shell, K. When sunspots don't matter. Econ Theory 9, 169–178 (1997). https://doi.org/10.1007/BF01213451

Download citation

  • Received:

  • Revised:

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF01213451

JEL Classification Numbers

Search

Navigation