EconPapers    
Economics at your fingertips  
 

Continua of underemployment equilibria

Jacques Dreze and P. Jean-Jacques Herings ()

No 1998045, CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper the existence of unemployment is partly explained as being the result of coordination failures. This is achieved by considering a standard general equilibrium model and splitting the set of commodities in two groups. The first group contains commodities like gold. The prices of these commodities are fully flexible, even in the short run, and their markets always clear. The prices of the commodities in the second group are rigid in the short run (for instance labour services or some consumer goods) and households and firms may expect restricted supply possibilities. Whe show that such expectations are selfenforcing, even if all prices of commodities in the second group are competitive. In that case it is shown that as a result of coordination failures a continuum of equilibria results, among which an equilibrium with approximately no trade inthe commodities of the second group, and a Walrasian equilibrium. In fact, these coordination failures also arise at other price systems, but then unemployment is the result of both a wrong price system and coordination failures. Moreover, some properties of the set of equilibria are analysed. Generically, there exists a continuum of non-indifferent equilibrium allocations. Under a condition implied by gross substitutability, there exists a continuum of equilibrium allocations in the neighbourhood of a competitive allocation. Examples show that the latter property may not hold in general.

Keywords: General equilibrium; underemployment; coordination failures; indeterminacy. (search for similar items in EconPapers)
JEL-codes: C62 D51 (search for similar items in EconPapers)
Date: 1998-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
https://uclouvain.be/en/research-institutes/immaq/core/dp-1998.html (text/html)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: Continua of Underemployment Equilibria (1998) Downloads
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:cor:louvco:1998045

Access Statistics for this paper

More papers in CORE Discussion Papers from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Alain GILLIS ().

 
Page updated 2019-10-15
Handle: RePEc:cor:louvco:1998045