Equilibrium Prices When the Sunspot Variable is Continuous
Posted: 16 Feb 2013
Date Written: December 12, 1999
We analyze sunspot-equilibrium prices in nonconvex economies with perfect markets and a continuous sunspot variable. Our primary result is that every sunspot equilibrium allocation can be supported by prices that, when adjusted for probabilities, are constant across states. This result extends to the case of a finite number of equally-probable states under a nonsatiation condition, but does not extend to general discrete state spaces. We use our primary result to establish the equivalence of the set of sunspot equilibrium allocations based on a continuous sunspot variable and the set of lottery equilibrium allocations.
Keywords: indivisibilities, nonconvexities, sunspot equilibrium, lottery equilibrium
JEL Classification: D51, D84, E32
Suggested Citation: Suggested Citation