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Externalities, expectations, and growth

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  • Fernando Vega-Redondo

    () (Facultad de EconÕmicas and Instituto Valenciano de Investigaciones EconÕmicas, Universidad de Alicante, E-03071 Alicante, SPAIN)

Abstract

The paper studies a model of accumulation and growth where a continuum of heterogeneous firms play dynamically optimal strategies along a (rational expectations) equilibrium. The key feature of the model is that firms' technological decisions are assumed subject to both friction and external effects. This gives rise to a wide multiplicity of equilibrium behavior, any path of sustained growth requiring that the economy tackle a never-ending chain of fresh coordination problems. This setup is modelled as a (non-atomic) dynamic game, suitable conditions being provided that partially characterize when sustained growth is a possible (never the unique) equilibrium outcome.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 14 (1999)
Issue (Month): 1 ()
Pages: 203-218

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Handle: RePEc:spr:joecth:v:14:y:1999:i:1:p:203-218

Note: Received: May 25, 1995; revised version: March 25, 1998
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Related research

Keywords: Growth · Network externalities · Multiplicity of equilibrium.;

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