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Unemployment equilibrium and economic policy in mixed markets

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  • Ludovic A. JULIEN

    (Universite Paris Ouest-Nanterre La Defense and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

This paper considers a simple static Cournot-Nash model of an exchange economy with two productive sectors at flexible prices and wages. The traders in the atomless sector are price-takers, while the atoms behave strategically. We focus on the consequences of strategic interactions on the market outcome. Firstly, strategic interactions create underemployment on the labor market. Secondly, when the number of atoms increases without limit, the underemployment equilibrium coincides with the competitive equilibrium. Thirdly, we compare the welfare reached by traders at both equilibria. Fourthly, we consider the implementation of a tax levied on strategic supplies. Finally, we compare the approach retained with the usual monopolistic competition framework.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2009030.

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Length: 23
Date of creation: 05 Oct 2009
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Handle: RePEc:ctl:louvir:2009030

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  1. d'ASPREMONT, C. & DOS SANTOS FERREIRA, R. & ÉRARD-VARET, L.-A., . "General equilibrium concepts under imperfect competition: a Cournotian approach," CORE Discussion Papers RP -1259, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. d'ASPREMONT, Claude & DOS SANTOS FERREIRA, Rodolphe & GERARD-VARET, Louis-André, . "On monopolistic competition and involuntary unemployment," CORE Discussion Papers RP -909, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. GABSZEWICZ, Jean & GRAZZINI, Lisa, 1998. "Taxing market power," CORE Discussion Papers 1998048, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  5. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  6. Manning, Alan, 1990. "Imperfect Competition, Multiple Equilibria and Unemployment Policy," Economic Journal, Royal Economic Society, vol. 100(400), pages 151-62, Supplemen.
  7. Tito Cordella & Manjira Datta, 1994. "Intertemporal Cournot and Walras Equilibrium: An Illustration," Working Papers 193, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. Russell W. Cooper, 2005. "Estimation and Identification of Structural Parameters in the Presence of Multiple Equilibria," Eastern Economic Journal, Eastern Economic Association, vol. 31(1), pages 107-130, Winter.
  9. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-68, October.
  10. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
  11. Weitzman, Martin L, 1982. "Increasing Returns and the Foundations of Unemployment Theory," Economic Journal, Royal Economic Society, vol. 92(368), pages 787-804, December.
  12. Hart, Oliver, 1982. "A Model of Imperfect Competition with Keynesian Features," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 109-38, February.
  13. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  14. Shitovitz, Benyamin, 1973. "Oligopoly in Markets with a Continuum of Traders," Econometrica, Econometric Society, vol. 41(3), pages 467-501, May.
  15. d'ASPREMONT, Claude & DOS SANTOS FERREIRA, Rodolphe & GERARD-VARET, Louis-André, . "Unemployment in an extended Cournot oligopoly model," CORE Discussion Papers RP -843, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x.
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