Multiple Equilibria with Externalities

Emanuela Randon ()

Discussion Papers from Department of Economics, University of York

Abstract: We analyse the implications of multiple Nash equilibria in consumption patterns. Multiple equilibrium theory has been extensively used in macroeconomics to explain the convergence of the system to a low inefficient equilibrium. Its microfoundations appear very abstract and stylised. It has been recognised that a rigourous microfoundation matters above all when policy and dynamic implications are considered. For example, Cahuc and Kempf (1997) show that, just by assuming a restrictive number of players, the standard result of Pareto superior simultaneous solutions on staggered decisions is not confirmed, or that introducing a more specific framework, the general expansionary demand policies do not generate the beneficial effects predicted by general stylised models (see Pagano (1990) for a discussion). The main contribution of this paper is to provide a more specific microfoundation of multiple equilibria in consumption theory.

Keywords: Multiple Equilibria; Consumption Externalities (search for similar items in EconPapers)
JEL-codes: C62 C72 D11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic
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