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Friction and the Multiplicity of Equilibria

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  • Karp, Larry S.
  • Paul, Thierry

Abstract

In familiar models, a decrease in the friction facing mobile factors (e.g., lowering their adjustment costs) increases a coordination problem, leading to more circumstances where there are multiple equilibria. We show that a decrease in friction can decrease coordination problems if, for example, a production externality arises from a changing stock of knowledge or a changing environmental stock. In general, the relation between the amount of friction that mobile factors face and the likelihood of multiple equilibria is non-monotonic.

Suggested Citation

  • Karp, Larry S. & Paul, Thierry, 2005. "Friction and the Multiplicity of Equilibria," CUDARE Working Papers 25120, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:25120
    DOI: 10.22004/ag.econ.25120
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