The Coordination Problem and Equilibrium Theories of Recessions

Larry Jones and Rodolfo Manuelli

American Economic Review, 1992, vol. 82, issue 3, 451-71

Abstract: In this paper, the authors build on the recent literature on coordination problems to construct a model in which there is potential for low-output equilibrium. The authors show that the conditions that guarantee interior Walrasian equilibria, in conjunction with a continuity restriction on strategies, rule out equilibria with extremely low levels of activity (zero activity), which is a distinguishing feature of many existing models. They study the case of separability and show that there is no rationing and, hence, no equilibrium unemployment. In addition, in a numerical example, the authors find that there is a unique symmetric equilibrium. Copyright 1992 by American Economic Association.

Date: 1992
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Working Paper: The Coordination Problem and Equilibrium Theories of Recessions (1987)
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