Friction and the Multiplicity of Equilibria
AbstractIn 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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Bibliographic InfoPaper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt1r57v43d.
Date of creation: 08 Feb 2005
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Indeterminacy; Multiple equilibria; Coordination games; Factor reallocation; Environmental externality; Learning-by-doing; Costs of adjustment;
Other versions of this item:
- Karp, Larry & Paul, Thierry, 2005. "Friction and the multiplicity of equilibria," CUDARE Working Paper Series 0960R, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Karp, Larry, 2005. "Friction and the Multiplicity of Equilibria," Institute for Research on Labor and Employment, Working Paper Series qt0n1563b5, Institute of Industrial Relations, UC Berkeley.
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