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Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices

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  • Citanna, Alessandro
  • Cres, Herve
  • Dreze, Jacques
  • Herings, P. Jean-Jacques
  • Villanacci, Antonio

Abstract

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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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 36 (2001)
Issue (Month): 3 (December)
Pages: 169-200

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Handle: RePEc:eee:mateco:v:36:y:2001:i:3:p:169-200

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Web page: http://www.elsevier.com/locate/jmateco

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  1. Kurz, Mordecai, 1982. "Unemployment equilibrium in an economy with linked prices," Journal of Economic Theory, Elsevier, Elsevier, vol. 26(1), pages 100-123, February.
  2. van der Laan, Gerard, 1980. "Equilibrium under Rigid Prices with Compensation for the consumers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 63-73, February.
  3. DREZE, Jacques H. & HERINGS, P. Jean-Jacques, 1998. "Continua of underemployment equilibria," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1998045, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(3), pages 441-63, August.
  5. Jacques H.DREZE, 2001. "On the Macroeconomics of Uncertainty and Incomplete Markets," Discussion Papers (REL - Recherches Economiques de Louvain), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 2001011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  6. Polterovich, V. M. & Spivak, V. A., 1983. "Gross substitutability of point-to-set correspondences," Journal of Mathematical Economics, Elsevier, Elsevier, vol. 11(2), pages 117-140, April.
  7. Herings, P.J.J., 1992. "On the structure of constrained equilibria," Research Memorandum, Tilburg University, Faculty of Economics and Business Administration 587, Tilburg University, Faculty of Economics and Business Administration.
  8. Movshovich, Solomon M., 1994. "A price adjustment process in a rationed economy," Journal of Mathematical Economics, Elsevier, Elsevier, vol. 23(4), pages 305-321, July.
  9. Herings, P. Jean-Jacques, 1998. "On the existence of a continuum of constrained equilibria1," Journal of Mathematical Economics, Elsevier, Elsevier, vol. 30(3), pages 257-273, October.
  10. P. Jean-Jacques Herings, 1995. "Equilibrium existence results for economies with price rigidities," Economic Theory, Springer, Springer, vol. 7(1), pages 63-80.
  11. Roberts, John, 1987. "An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages," American Economic Review, American Economic Association, American Economic Association, vol. 77(5), pages 856-74, December.
  12. van der LAAN, Gerard, . "Simplicial approximation of unemployment equilibria," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -467, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Drazen, Allan, 1980. "Recent Developments in Macroeconomic Disequilibrium Theory," Econometrica, Econometric Society, Econometric Society, vol. 48(2), pages 283-306, March.
  14. Laroque, Guy, 1978. "The Fixed Price Equilibria: Some Results in Local Comparative Statics," Econometrica, Econometric Society, Econometric Society, vol. 46(5), pages 1127-54, September.
  15. Dreze, Jacques H, 1975. "Existence of an Exchange Equilibrium under Price Rigidities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 301-20, June.
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Citations

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Cited by:
  1. DREZE, Jacques H. & HERINGS, P. Jean-Jacques, 2007. "Kinky perceived demand curves and Keynes-Negishi equilibria," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2007075, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Herings, P.J.J. & Laan, G. van der & Talman, A.J.J., 2001. "Quantity Constrained Equilibria," Discussion Paper, Tilburg University, Center for Economic Research 2001-93, Tilburg University, Center for Economic Research.
  3. Herings,P. Jean-Jacques & Konovalov,Alexander, 2000. "Constrained Suboptimality when Prices Are Non-competitive," Research Memorandum, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) 012, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. DRÈZE, Jacques, 2001. "Indeterminateness of equilibria and macroeconomics," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2001058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Gersbach, Hans & Haller, Hans, 2010. "Hierarchical Trade," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7764, C.E.P.R. Discussion Papers.
  6. Herings P. Jean-Jacques, 2012. "General Equilibrium and The New Neoclassical Synthesis," Research Memorandum, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) 046, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  7. Herings, P.J.J. & Laan, G. van der & Talman, A.J.J., 2004. "Equilibria with Coordination Failures," Discussion Paper, Tilburg University, Center for Economic Research 2004-107, Tilburg University, Center for Economic Research.
  8. DREZE, Jacques H. & HERINGS, Jean-Jacques P., . "Sequentially complete markets remain incomplete," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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