Friction and the Multiplicity of Equilibria

Larry Karp

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

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: Indeterminacy; Multiple equilibria; Coordination games (search for similar items in EconPapers)
Date: 2005-02-08
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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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