Real indeterminacy, sunspots and Pareto inefficiency in economies with incomplete asset markets

We consider two periods economies with both intrinsic and extrinsic uncertainty. Asset markets are incomplete in the certainty economy. If assets are nominal, there are enough commodities and the number of agents is greater than two and smaller than the total number of states of nature "tomorrow" (minus one), then a sunspot-invariant equilibrium is generically Pareto dominated by some sunspot equilibria. When assets are real, and there are enough commodities, if there are sunspot equilibria, there are sunspot equilibria Pareto dominating sunspot-invariant equilibria under the same restriction on the number of agents (and stronger restrictions on the number of commodities). (A complete version of the paper will appear in Citanna A. et alii (eds.), Essays in Dynamic general Equilibrium.Festschrift for David Cass, Springer, Berlin, 2005, 181-20