Lotteries, Sunspots, and Incentive Constraints
... constraints and would yield strictly higher ex ante utility than (x^ 1g , x^ 2g , x^ 1b ,
x^ 2b ) because utility is strictly concave. Consider the net trade
(x 1g , x 2g , x 1b , x 2b )=((1&%) x^ 1g +%x~ 1g , (1&%) x^ 2g +%x~ 2g ,
(1&%) x^ 1b +%x~ 1b , (1&%) x^ 2b +%x~ 2b ).
If % is small enough, t ...