This project continues research on market uncertainty, the uncertainty generated by the economy itself. In particular, the project analyzes the stability of sunspot equilibria from various models (1) in the face of more general lottery devices and (2) in the face of the possibility of the formation of coalitions of cooperating individuals. The initial phase of this research effort will be an outgrowth of the analysis of stochastic equilibria in economies with indivisible commodities. The project also continues the analysis of the role of government tax policies in the intertemporal allocation of resources, including their role in economies in which there is market uncertainty. Economic actors must make decision in face of uncertainty. Some of this uncertainty is the result of uncertainty about economic fundamentals-- tastes, endowments, production possibilities, and even government policies. This type of uncertainty is successfully modelled by conventional general economic equilibrium theory. This project addressed another, significant source of uncertainty which individuals actually face. This is market uncertainty, uncertainty generated within the economy itself, uncertainty about the economic outcomes (such as prices, net trades, employment, and the inflation rate) given the fundamental parameters. Businessmen, for example, wonder whether consumers' confidence will be high or low, whether credit will be loose or tight, whether the dollar will be strong or weak, and so forth. Market uncertainty is a subject of obvious social importance. Macroeconomists, for example, ask what policies should the government take to counteract disturbances generated by the economy itself. When we design organizations -- or, more generally choose mechanisms -- we shall want to know how uncertainty is created and transmitted by these new organizational forms. This project contributes to our understanding of this type of uncertainty by extending formal models of market uncertainty, i.e., the so-called "sunspot equilibrium" models pioneered by the investigator.
