Economic Theory

, Volume 3, Issue 1, pp 1–17 | Cite as

Indivisibilities, lotteries, and sunspot equilibria

  • Karl Shell
  • Randall Wright
Research Articles

Summary

We analyze economies with indivisible commodities. There are two reasons for doing so. First, we extend and provide some new insights into sunspot equilibrium theory. Finite competitive economies with perfect markets and convex consumption sets do not allow sunspot equilibria; these same economies with nonconvex consumption sets do, and they have several properties that can never arise in convex environments. Second, we provide a reinterpretation of the employment lotteries used in contract theory and in macroeconomic models with indivisible labor. We show how socially optimal employment lotteries can be decentralized as competitive equilibria without lotteries once sunspots are introduced.

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Copyright information

© Springer-Verlag 1993

Authors and Affiliations

  • Karl Shell
    • 1
  • Randall Wright
    • 2
    • 3
  1. 1.Department of EconomicsCornell UniversityIthacaUSA
  2. 2.Department of EconomicsUniversity of PennsylvaniaPhiladelphiaUSA
  3. 3.Federal Reserve Bank of MinneapolisMinneapolisUSA

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