Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices
P. Jean-Jacques Herings () and
Antonio Villanacci ()
No 732, HEC Research Papers Series from HEC Paris
In this paper the existence of unemployment is partly explained as being the result of coordination failures. It is shown that as a result of self-fulfilling pessimistic expectations, even at Walrasian prices, a continuum of equilibria results, among which an equilibrium with approximately no trade and a Walrasian equilibrium. These coordination failures also arise at other price systems, but then unemployment is the result of both a wrong price system and coordination failures. Some properties of the set of equilibria are analyzed. 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 neighborhood of a competitive allocation, when prices are Walrasian. For a specialized economy, a dynamic illustration is offered.
Keywords: general equilibrium; underemployment; coordination failures; indeterminacy (search for similar items in EconPapers)
JEL-codes: C62 D51 (search for similar items in EconPapers)
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Journal Article: Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices (2001)
Working Paper: Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices (2001)
Working Paper: Continua of Underemployment Equilibria Reflecting Coordination Failures, Also at Walrasian Prices (2001)
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