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How productive is optimism? the Impact of ambiguity on the "big push"

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  • David Kelsey

    ()
    (University of Exeter)

  • Wei Pang

    ()
    (Kingston University)

Abstract

The paper finds that sufficient ambiguity leads to the uniqueness of equilibrium in macroeconomic coordination games. The results have a Keynesian flavour: sufficient optimism gives rise to a Pareto-optimal equilibrium; and sufficient pessimism results in a Pareto-inferior equilibrium. This analysis is applied to a "Big Push" model from the economic growth literature.

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File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I1-P80.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 1 ()
Pages: 855-865

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Handle: RePEc:ebl:ecbull:eb-10-00074

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Related research

Keywords: Ambiguity; Strategic Complementary; Coordination Games; Optimism; "Big Push".;

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References

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  1. Chateauneuf, Alain & Eichberger, J├╝rgen & Grant, Simon, 2003. "Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities," Sonderforschungsbereich 504 Publications 03-10, Sonderforschungsbereich 504, Universit├Ąt Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  2. Shleifer, Andrei & Vishny, Robert W., 1988. "The Efficiency of Investment in the Presence of Aggregate Demand Spillovers," Scholarly Articles 3725553, Harvard University Department of Economics.
  3. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  4. Heath, Chip & Tversky, Amos, 1991. " Preference and Belief: Ambiguity and Competence in Choice under Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 4(1), pages 5-28, January.
  5. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
  6. Fatas, Antonio & Metrick, Andrew, 1997. "Irreversible Investment and Strategic Interaction," Economica, London School of Economics and Political Science, vol. 64(253), pages 31-47, February.
  7. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May.
  8. Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, vol. 30(2), pages 183-215, February.
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