Welfare of Alternative Equilibrium Paths in the Kiyotaki-Wright Model

Juan M. Romero ()
Additional contact information
Juan M. Romero: Departamento de Economia, Instituto Tecnologico Autonomo de Mexico (ITAM)

No 9502, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: I provide new existence and welfare results for the Kiyotaki-Wright model (JPE, 1989). Previous work on the model has focused almost exclusively on steady-states and has established the existence of multiple steady-states. Moreover, welfare comparisons among steady-states are of dubious significance because transitions are ignored. For mixed strategies that restrict agents to play a unique strategy for each opportunity set (which as shown in Kehoe-Kiyotaki-Wright (ET, 1993) implies that the number of steady-state is generically finite). I prove that there exists an equilibrium in which the most costly to-store good has the highest acceptance rate. Furthermore, this equilibrium Pareto dominates equilibria in which less costly to- store goods are universally accepted. I also display multiple equilibria in which only pure strategies are played. Among these is one in which the universally accepted good is the least costly to-store and another in which the universally accepted good is the second least costly to-store. For some initial conditions both exist and the latter is better according to a representative-agent-type welfare criterion. Thus, my results show (1) that there often exist equilibria in which objects with poor storage properties are widely accepted and (2) that these equilibria have good welfare properties in relation to those in which better objects are widely accepted.

Pages: 34 pages
Date: 1995-07
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cie:wpaper:9502

Access Statistics for this paper

More papers in Working Papers from Centro de Investigacion Economica, ITAM Contact information at EDIRC.
Bibliographic data for series maintained by Diego Dominguez ().