TY - JOUR

T1 - Growth in economies with non convexities

T2 - Sunspots and lottery equilibria

AU - Rustichini, Aldo

AU - Siconolfi, Paolo

PY - 2004/10/1

Y1 - 2004/10/1

N2 - We investigate the relation between lotteries and sunspot allocations in a dynamic economy where the utility functions are not concave. In an intertemporal competitive economy, the household consumption set is identified with the set of lotteries, while in the intertemporal sunspot economy it is the set of measurable allocations in the given probability space of sunspots. Sunspot intertemporal equilibria whenever they exist are efficient, independently of the sunspot space specification. If feasibility is, at each point in time, a restriction over the average value of the lotteries, competitive equilibrium prices are linear in basic commodities and intertemporal sunspot and competitive equilibria are equivalent. Two models have this feature: Large economies and economies with semi-linear technologies. We provide examples showing that in general, intertemporal competitive equilibrium prices are non-linear in basic commodities and, hence, intertemporal sunspot equilibria do not exist. The competitive static equilibrium allocations are stationary, intertemporal equilibrium allocations, but the static sunspot equilibria need not to be stationary, intertemporal sunspot equilibria. We construct examples of non-convex economies with indeterminate and Pareto ranked static sunspot equilibrium allocations associated to distinct specifications of the sunspot probability space.

AB - We investigate the relation between lotteries and sunspot allocations in a dynamic economy where the utility functions are not concave. In an intertemporal competitive economy, the household consumption set is identified with the set of lotteries, while in the intertemporal sunspot economy it is the set of measurable allocations in the given probability space of sunspots. Sunspot intertemporal equilibria whenever they exist are efficient, independently of the sunspot space specification. If feasibility is, at each point in time, a restriction over the average value of the lotteries, competitive equilibrium prices are linear in basic commodities and intertemporal sunspot and competitive equilibria are equivalent. Two models have this feature: Large economies and economies with semi-linear technologies. We provide examples showing that in general, intertemporal competitive equilibrium prices are non-linear in basic commodities and, hence, intertemporal sunspot equilibria do not exist. The competitive static equilibrium allocations are stationary, intertemporal equilibrium allocations, but the static sunspot equilibria need not to be stationary, intertemporal sunspot equilibria. We construct examples of non-convex economies with indeterminate and Pareto ranked static sunspot equilibrium allocations associated to distinct specifications of the sunspot probability space.

KW - Lottery equilibria

KW - Non-convexities

KW - Sunspot Equilibria

UR - http://www.scopus.com/inward/record.url?scp=4644319868&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=4644319868&partnerID=8YFLogxK

U2 - 10.1007/s00199-004-0509-1

DO - 10.1007/s00199-004-0509-1

M3 - Article

AN - SCOPUS:4644319868

VL - 24

SP - 701

EP - 726

JO - Economic Theory

JF - Economic Theory

SN - 0938-2259

IS - 3

ER -