This paper examines the effects of extrinsic uncertainty or sunspots on competitive equilibrium when financial markets are incomplete. For the canonical two-period, pure-exchange model with bonds (or so-called "nominal assets," yielding overall returns specified in units of account, and...

This paper analyzes the feasibility of sustaining uniformly positive consumption forever--even when flows of exhaustible resources are an indispensable input. The main result is a characterization of an economy's capability for sustaining such consumption--under quite general maintained...

In this paper we develop a differential technique for investigating the welfare effects of financial innovation in incomplete markets. Utilizing this technique, and after parametrizing the standard competitive, pure-exchange economy by both endowments and utility functions, we establish the...

The present paper is an extension of Ghiglino and Shell [7] to the case of imperfect consumer credit markets. We show that with constraints on individual credit and only anonymous (i.e., non-personalized) lump-sum taxes, strong (or “global”) irrelevance of government budget deficits is not...

We show that a finite, competitive economy is immune to sunspots if (i) preferences are strictly convex, (ii) the set of feasible allocations is convex, and (iii) the contingent-claims market is perfect. The conditions (i)-(ii) cover some, but not all, economies with nonconvex technologies....

A sunspot equilibrium (SSE) is based on some extrinsic randomizing device (RD). We analyze the robustness of SSE. (1) We say that an SSE allocation is robust to refinements if it is also an SSE allocation based on any refinement of its RD. (2) We introduce two core concepts for analyzing the...

We analyze economies with indivisible commodities. There are two reasons for doing so. First, we extend and provide some new insights into sunspot equilibrium theory. Finite competitive economies with perfect markets and convex consumption sets do not allow sunspot equilibria; these same...