Externalities, expectations, and growth

Fernando Vega-Redondo

Economic Theory, 1999, vol. 14, issue 1, 203-218

Abstract: The paper studies a model of accumulation and growth where a continuum of heterogeneous firms play dynamically optimal strategies along a (rational expectations) equilibrium. The key feature of the model is that firms' technological decisions are assumed subject to both friction and external effects. This gives rise to a wide multiplicity of equilibrium behavior, any path of sustained growth requiring that the economy tackle a never-ending chain of fresh coordination problems. This setup is modelled as a (non-atomic) dynamic game, suitable conditions being provided that partially characterize when sustained growth is a possible (never the unique) equilibrium outcome.

Keywords: Growth; ·; Network; externalities; ·; Multiplicity; of; equilibrium. (search for similar items in EconPapers)
JEL-codes: C72 O30 O40 (search for similar items in EconPapers)
Date: 1999-07-08
Note: Received: May 25, 1995; revised version: March 25, 1998
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