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Friction and the Multiplicity of Equilibria

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Author Info
Larry Karp (University of California, Berkeley and Giannini Foundation)
Thierry Paul (IDEP/GREQAM)

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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.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1087&context=are_ucb
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Publisher Info
Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number 960R.

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Date of creation: 08 Feb 2005
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Handle: RePEc:cdl:agrebk:960r

Note: oai:cdlib1:are_ucb-1087
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Related research
Keywords: Indeterminacy; Multiple equilibria; Coordination games; Factor reallocation; Environmental externality; Learning-by-doing; Costs of adjustment;

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This page was last updated on 2009-11-27.

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