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Equilibria with Coordination Failures

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  • Herings, P.J.J.
  • Laan, G. van der
  • Talman, A.J.J.

    (Tilburg University, Center for Economic Research)

Abstract

This paper extends the recent literature on equilibria with coordination failures to arbitrary convex sets of admissible prices.We introduce a new equilibrium concept, called quantity constrained equilibrium (QCE), giving a uni.ed treatment to all cases considered in the literature so far.At a QCE the expected trade opportunities on supply and demand are completely determined by a rationing vector satisfying that the prevailing price system maximizes the value of the rationing vector within the set of admissible prices.When the set of admissible prices is compact, we show the existence of a connected set of non-trivial QCEs.This set connects two trivial no-trade equilibria, one with completely pessimistic expectations concerning supply opportunities and one with completely pessimistic expectations concerning demand opportunities.Moreover, the set contains for every commodity a generalized Drèze equilibrium, being a QCE at which for that commodity no binding trade opportunities on both supply and demand are expected, and also a generalized supply-constrained equilibrium at which no binding constraints on demand opportunities are expected and for at least one commodity also not on supply.We apply this main result to several special cases, and also discuss the case of an unbounded set of admissible prices.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2004-107.

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Date of creation: 2004
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Handle: RePEc:dgr:kubcen:2004107

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References

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  1. P. Herings & Herakles Polemarchakis, 2005. "Pareto improving price regulation when the asset market is incomplete," Economic Theory, Springer, vol. 25(1), pages 135-154, 01.
  2. Herings, P.J.J. & Talman, A.J.J. & Yang, Z.F., 1996. "The computation of a continuum of constrained equilibria," Open Access publications from Tilburg University urn:nbn:nl:ui:12-72887, Tilburg University.
  3. DREZE, Jacques, 1999. "On the macroeconomics of uncertainty and incomplete markets," CORE Discussion Papers 1999064, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Cittana, A. & Cres, H. & Dreze, H. & Herings, P.J.J. & Villanacci, A., 2001. "Continua of Underemployment Equilibria Reflecting Coordination Failures, Also at Walrasian Prices," Open Access publications from Maastricht University urn:nbn:nl:ui:27-5798, Maastricht University.
  5. Herings, P. Jean-Jacques, 1998. "On the existence of a continuum of constrained equilibria1," Journal of Mathematical Economics, Elsevier, vol. 30(3), pages 257-273, October.
  6. Nguyen, Trien T & Whalley, John, 1990. "General Equilibrium Analysis of Price Controls: A Computational Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 667-84, August.
  7. Weddepohl, Claus, 1987. "Supply-constrained equilibria in economies with indexed prices," Journal of Economic Theory, Elsevier, vol. 43(2), pages 203-222, December.
  8. Nguyen, Trien T. & Whalley, John, 1986. "Equilibrium under price controls with endogenous transactions costs," Journal of Economic Theory, Elsevier, vol. 39(2), pages 290-300, August.
  9. DREZE, Jacques H., 1997. "Walras-Keynes equilibria coordination and macroeconomics," CORE Discussion Papers 1997051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Dehez, Pierre, 1984. "On supply-constrained equilibria," Open Access publications from Université catholique de Louvain info:hdl:2078.1/88419, Université catholique de Louvain.
  11. van der Laan, Gerard, 1980. "Equilibrium under Rigid Prices with Compensation for the consumers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 63-73, February.
  12. Herings, P Jean-Jacques, 1996. "Equilibrium Existence Results for Economies with Price Rigidities," Economic Theory, Springer, vol. 7(1), pages 63-80, January.
  13. Laan, Gerard van der, 1982. "Simplicial approximation of unemployment equilibria," Journal of Mathematical Economics, Elsevier, vol. 9(1-2), pages 83-97, January.
  14. van der Laan, Gerard, 1984. "Supply-constrained fixed price equilibria in monetary economies," Journal of Mathematical Economics, Elsevier, vol. 13(2), pages 171-187, October.
  15. Herings, P.J.J., 1998. "On the Existence of a Continuum of Constrained Equilibria," Open Access publications from Maastricht University urn:nbn:nl:ui:27-5938, Maastricht University.
  16. Roberts, John, 1987. "An Equilibrium Model with Involuntary Unemployment at Flexible, Competitive Prices and Wages," American Economic Review, American Economic Association, vol. 77(5), pages 856-74, December.
  17. Dehez, Pierre & Dreze, Jacques H., 1984. "On supply-constrained equilibria," Journal of Economic Theory, Elsevier, vol. 33(1), pages 172-182, June.
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Cited by:
  1. Babenko, R. & Talman, A.J.J., 2006. "Quantity Constrained General Equilibrium," Discussion Paper 2006-125, Tilburg University, Center for Economic Research.

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