Uncertainty and Endogenous Selection of Economic Equilibria
Pasquale Scaramozzino and
Metroeconomica, 2004, vol. 55, issue 1, 22-40
This paper presents a model of coordination failures based on market power and local oligopoly. The economy exhibits a multiplicity of Pareto‐ranked equilibria. The introduction of uncertainty generates an endogenous equilibrium selection process, due to a strategic use of information by firms. The economy is more likely to settle on some equilibria than on others. We argue that a full understanding of these robustness criteria is needed before any policy which is intended to help coordinate the level of activity to a Pareto‐dominant outcome can be successfully implemented.
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