Indeterminacy and history dependence of strategically interacting players

Franz Wirl

Economics Letters, 2016, vol. 145, issue C, 19-24

Abstract: This paper considers a finite number of agents populating Krugman’s (1991) labor market. The objective is to investigate whether the much emphasized indeterminate outcome is due to the assumption of uncountable many agents, each of measure 0. It is shown that this result extends to n players each with strategic leverage if the social reference includes the own action. This multiplicity results in an open loop setting, which renders in almost all other cases a unique intertemporal Nash equilibrium. Finally, the cooperative solution exhibits non-standard features: the possibility of converging to the (stationary inferior) agricultural equilibrium and that is due to an unstable node while an unstable spiral can render the unique outcome of full industrialization.

Keywords: Krugman’s labor market; Stability; History and expectation dependence; Differential game (search for similar items in EconPapers)
JEL-codes: C73 D92 J61 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:145:y:2016:i:c:p:19-24

DOI: 10.1016/j.econlet.2016.05.006

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