Coordination and Development

José Pontes and Joana Pais ()

No 2013/29, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: This paper addresses the issue of industrial development using a coordination game. Complementarities between transport infrastructure provision by the Government and consumer goods manufacturing firms, and among consumer goods firms themselves dictate the outcome: either the transport infrastructure (i.e., a highway) is not built and firms keep doing “home” production, thus supplying mainly nearby consumers and dispensing with a highway; or they switch to “factory” production, a more spatially centralized regime, where output must be sold over long distances, thus implying the construction of a highway. In relation to the existent literature, this paper presents two main innovations. Firstly, the two sources of linkage, namely cost linkage, through the provision of an indivisible input (the highway), and demand linkage, through the wage rise brought about by industrialization, are not treated separately, but they are integrated in the same model. Consequently, the game has now two levels of equilibrium selection. Secondly, the paper does not limit itself to checking that there can arise multiple Nash equilibria under certain circumstances, but it discusses methods for the selection of a unique outcome. Consequently, in addition to the classical Nash equilibria mentioned above, there is a third possible solution where the Government builds the highway but the consumer goods firms refrain from using it and stick to “home” production. Hence, the transport infrastructure becomes a “white elephant”.

Keywords: Big Push; Coordination Games; Economic Development; Equilibrium selection; Industrialization. (search for similar items in EconPapers)
JEL-codes: C72 O12 O14 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-gth, nep-hpe and nep-tre
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://depeco.iseg.ulisboa.pt/wp/wp292013.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ise:isegwp:wp292013

Access Statistics for this paper

More papers in Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa Department of Economics, ISEG - Lisbon School of Economics and Management, Universidade de Lisboa, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL.
Bibliographic data for series maintained by Vitor Escaria ().