Friction and the Multiplicity of Equilibria

Larry Karp and Thierry Paul

No 25120, CUDARE Working Papers from University of California, Berkeley, Department of Agricultural and Resource Economics

Abstract: In familiar models, a decrease in the friction facing mobile factors (e.g., lowering their adjustment costs) increases a coordination problem, leading to more circumstances where there are multiple equilibria. We show that a decrease in friction can decrease coordination problems if, for example, a production externality arises from a changing stock of knowledge or a changing environmental stock. In general, the relation between the amount of friction that mobile factors face and the likelihood of multiple equilibria is non-monotonic.

Keywords: Research; Methods/; Statistical; Methods (search for similar items in EconPapers)
Pages: 35
Date: 2005
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https://ageconsearch.umn.edu/record/25120/files/wp050960.pdf (application/pdf)

Related works:
Working Paper: Friction and the Multiplicity of Equilibria (2005)
Working Paper: Friction and the Multiplicity of Equilibria (2005)
Working Paper: Friction and the Multiplicity of Equilibria (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ucbecw:25120

DOI: 10.22004/ag.econ.25120

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