Department of Economics

In nonconvex environments, a sunspot equilibrium can sometimes be destroyed by the introduction of new extrinsic information. We provide a simple test for determining whether or not a particular equilibrium survives, or is robust to, all possible re…nements of the state space. We use this test to provide a characterization of the set of robust sunspot-equilibrium allocations of a given economy: it is equivalent to the set of equilibrium allocations of the associated lottery economy.