Government Policy and the Probability of Coordination Failures

Huberto Ennis and Todd Keister

No 301, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: This paper introduces an approach to the study of optimal government policy in economies characterized by a coordination problem and multiple equilibria. Such models are often criticized as not being useful for policy analysis because they fail to assign a unique prediction to each possible policy choice. We employ a selection mechanism that assigns, ex ante, a probability to each equilibrium indicating how likely it is to obtain. We show how such a mechanism can be derived as the natural result of an adaptive learning process. This approach leads to a well-defined optimal policy problem, and has important implications for the conduct of government policy. We illustrate these implications using a simple model of technology adoption under network externalities.

Pages: 37 pages
Date: 2003-02
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Citations: View citations in EconPapers (8)

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http://ftp.itam.mx/pub/academico/inves/keister/03-01.pdf First version, 2003 (application/pdf)

Related works:
Journal Article: Government policy and the probability of coordination failures (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cie:wpaper:0301

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