TY - JOUR
T1 - Continua of Underemployment Equilibria Reflecting Coordination Failures, Also at Walrasian Prices
AU - Citanna, A.
AU - Crès, H.
AU - Drèze, J.
AU - Herings, P.J.J.
AU - Villanacci, A.
PY - 2001/1/1
Y1 - 2001/1/1
N2 - 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.
AB - 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.
U2 - 10.1016/S0304-4068(01)00075-1
DO - 10.1016/S0304-4068(01)00075-1
M3 - Article
SN - 0304-4068
VL - 36
SP - 169
EP - 200
JO - Journal of Mathematical Economics
JF - Journal of Mathematical Economics
IS - 3
ER -