Fundamentals Versus Beliefs under Almost Common Knowledge

Larry Karp

No 25006, CUDARE Working Papers from University of California, Berkeley, Department of Agricultural and Resource Economics

Abstract: Modern economic growth models show that the equilibrium outcome may depend on agents' beliefs (expectations) rather than on economic fundamentals (history). In this situation, the equilibrium is indeterminate. However, if agents have "almost common knowledge" rather than common knowledge about the economic fundamentals, this indeterminacy vanishes in one of these models, under certain restrictions. In this situation, the unique competitive equilibrium can be influenced by government policy, just as in standard models.

Keywords: International Development; Resource/Energy Economics and Policy (search for similar items in EconPapers)
Pages: 32
Date: 2000
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Citations: View citations in EconPapers (3)

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Working Paper: Fundamentals versus Beliefs under Almost Common Knowledge (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ucbecw:25006

DOI: 10.22004/ag.econ.25006

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