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Uncertainty and Endogenous Selection of Economic Equilibria

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  • Pasquale Scaramozzino
  • Nir Vulkan

Abstract

This paper presents a model of coordination 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 coordinate the level of activity to a Pareto‐dominant outcome can be successfully implemented.

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  • Pasquale Scaramozzino & Nir Vulkan, 2004. "Uncertainty and Endogenous Selection of Economic Equilibria," Metroeconomica, Wiley Blackwell, vol. 55(1), pages 22-40, February.
    • Handle: RePEc:bla:metroe:v:55:y:2004:i:1:p:22-40
    DOI: 10.1111/j.0026-1386.2004.00180.x
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    Cited by:

    1. Pasquale Scaramozzino & Jonathan Temple & Nir Vulkan, 2005. "Implementation Cycles in the New Economy," Bristol Economics Discussion Papers 05/569, School of Economics, University of Bristol, UK.
    2. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.

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    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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