Underemployment of Resources and Self-Fulfilling Beliefs: Nonwalrasian Allocations at Walrasian Prices
P. Jean-Jacques Herings () and
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Alessandro Citanna: Groupement de Recherche et d'Etudes en Gestion à HEC
Antonio Villanacci: DIMADEFAS, Università degli Studi di Firenze
No 3, Sciences Po publications from Sciences Po
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.
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Working Paper: Underemployment of Resources and Self-Fulfilling Beliefs: Nonwalrasian Allocations at Walrasian Prices (2001)
Working Paper: Underemployment of Resources and Self-fulfilling Beliefs: Non-Walrasian Allocations at Walrasian Prices (2001)
Working Paper: Underemployment of resources and self-fulfilling beliefs: Nonwalrasian allocations at walrasian prices
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