Have the early coordination failures models achieved Keynes’s programme ?

Michel De Vroey

No 2004019, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The aim of this paper is to assess how three seminal coordination failure models (Diamond ((1982)1991), Howitt (1985) and Roberts (1987) have fared against ‘Keynes’s programme’. The first part of the paper characterises Keyne’s programme as consisting of the following four objectives : (a) demonstrating the existence of involuntary unemployment, (b) demonstrating that wage rigidity can be exonerated as its cause, (c) giving a general equilibrium interdependency explanation of the phenomenon within a perfect competition framework, ad (d) demonstrating that demand stimulation is the proper remedy to suppress involuntary unemployment. In a second part, I claim that no correct assessment of Keynes’s programme can be made without drawing a distinction between involuntary unemployment and underemployment. These prerequisites being settled, in part three I undertake the study of the three models to conclude that none of them succeed in achieving Keynes ‘ programme in its entirety. In the last part of the paper, I raise the issue as to whether Keynesian economists should continue to fight for the involuntary unemployment concept.

Keywords: involuntary unemployment; coordination failures; Keynes (search for similar items in EconPapers)
JEL-codes: B22 E12 E20 (search for similar items in EconPapers)
Pages: 20
Date: 2004-07-01
New Economics Papers: this item is included in nep-hpe and nep-mac
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Journal Article: Have the Early Coordination Failures Models Achieved Keynes's Programme ? (2005)
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