In a general-equilibrium economy with nonconvexities, there are sunspot equilibria with good welfare properties; sunspots can ameliorate the effects of the nonconvexities. For these economies, we show that agents act as if they have quasi-linear utility functions. We use this result to construct...

This paper extends the Pissarides [Pissarides, Christopher A. Equilibrium Unemployment Theory. Cambridge: MIT (2000)] model of the labor market to include crime and punishment à la Becker [Becker, Gary S. "Crime and punishment: an economic approach." Journal of Political Economy 76 (1968):...

This paper studies the relationship between the availability of unsecured credit to households and unemployment. We extend the Mortensen-Pissarides model to include a goods market with search and financial frictions. Households, who have limited commitment, face endogenous borrowing constraints...