Uncertainty and Endogenous Selection of Economic Equilibria

Pasquale Scaramozzino and Nir Vulkan ()
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Nir Vulkan: University of Oxford - Sa•d Business School

CEIS Research Paper from Tor Vergata University, CEIS

Abstract: This paper presents a model of co-ordination failures based on market power and local oligopoly. The economy exhibits a multiplicity of Pareto-ranked equilibria. The introduction of uncertainty generates an endogenous equilibrium selection process, due to a strategic use of information by firms. The economy is more likely to settle on some equilibria than on others. We argue that a full understanding of these robustness criteria is needed before any policy which is intended to help co-ordinate the level of activity to a Pareto dominant outcome can be successfully implemented.

Keywords: Microfoundations; co-ordination failure; equilibrium selection (search for similar items in EconPapers)
JEL-codes: C7 E00 (search for similar items in EconPapers)
Date: 2003-06-24
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Journal Article: Uncertainty and Endogenous Selection of Economic Equilibria (2004)
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