Scandinavian Working Papers in Economics
Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science
No 2004/15: Existence of Sunspot Equilibria and Uniqueness of Spot Market Equilibria: The Case of Intrinsically Complete Markets
Thorsten Hens (), Janós Mayer () and Beate Pilgrim
Additional contact information
Thorsten Hens: Institute for Empirical Research in Economics, University of Zurich, Postal: University of Zurich, Institute for Empirical Research in Economics, Blümlisalpstrasse 10, 8006 Zürich, Switzerland
Janós Mayer: Institute for Operations Research, University of Zurich, Postal: University of Zurich, Institute for Operations Research, Moussonstrasse 15, 8044 Zürich, Switzerland
Beate Pilgrim: Reuters AG, Frankfurt, Germany
Abstract: 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.
Keywords: Sunspot Equilibria; Intrinsically Complete Markets; Transfer Paradox
JEL-codes: C62
32 pages, November 22, 2004
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