Recursive competitive equilibrium in multi-sector economies

Mehra-Prescott (1980) (hereafter called M-P) proved welfare theorems for economies defined recursively for the first time. This paper extends the M-P results to a class of non-convex environments which is of interest because it includes a general class of sectoral or island models in which mobility is costly. In particular, it delivers equilibrium allocations for the Lucas-Prescott (1974) search economy as the solution to a concave dynamic programming problem. The outline of the paper follows. Section 2 describes the class of environments to be considered and section three shows how lotteries can be added to agent's consumption sets to preserve the results of M-P. Section 4 discusses how the class of environments can be extended in several directions and section five solves an example to demonstrate that the class of environments considered may produce equilibrium processes with interesting empirical implications. -from Author