Welfare Gains and Losses in Sunspot Equilibria

16 Pages Posted: 9 Aug 2007

See all articles by Atsushi Kajii

Atsushi Kajii

Institute of Economic Research, Kyoto University; Singapore Management University

Abstract

We study a standard two period exchange economy with one nominal asset. As is well known, there is a continuum of sunspot equilibria around each efficient equilibrium. A sunspot equilibrium is inefficient but some households may gain in sunspot equilibria relative to the efficient equilibrium. We show that a household's equilibrium utility level is either locally maximized or locally minimized at the efficient equilibrium, and derive a condition which identifies whether or not a household's utility is locally minimized or maximized.

Suggested Citation

Kajii, Atsushi, Welfare Gains and Losses in Sunspot Equilibria. Japanese Economic Review, Vol. 58, No. 3, pp. 329-344, September 2007, Available at SSRN: https://ssrn.com/abstract=1005520 or http://dx.doi.org/10.1111/j.1468-5876.2007.00418.x

Atsushi Kajii (Contact Author)

Institute of Economic Research, Kyoto University ( email )

Yoshida-Honmachi
Sakyo-ku
Kyoto 606-8501
JAPAN

HOME PAGE: http://www.kier.kyoto-u.ac.jp/~kajii/

Singapore Management University ( email )

School of Economics
90 Stamford Road
Singapore, 178903
Singapore

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