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Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices

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Author Info
CITANNA, Alessandro
CRES, Herve
DREZE, Jacques (CORE, Universite Catholique de Louvain)
HERINGS, Jean-Jacques (University of Maastricht)
VILLANACCI, Antonio (Universita degli Studi, Firenze)

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Abstract

In this paper the existence of unemployment is partly explained as being the result of coordination failures. It is shown that as a result of self-fulfilling pessimistic expectations, even at Walrasian prices, a continuum of equilibria results, among which an equilibrium with approximately no trade and a Walrasian equilibrium. These coordination failures also arise at other price systems, but then unemployment is the result of both a wrong price system and coordination failures. Some properties of the set of equilibria are analyzed. Generically, there exists a continuum of non-indifferent equilibrium allocations. Under a condition implied by gross substitutability, there exists a continuum of equilibrium allocations in the neighborhood of a competitive allocation, when prices are Walrasian. For a specialized economy, a dynamic illustration is offered.

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Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 732.

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Length: 33 pages
Date of creation: 01 May 2001
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Handle: RePEc:ebg:heccah:0732

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Related research
Keywords: general equilibrium; underemployment; coordination failures; indeterminacy;

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Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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  1. 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. [Downloadable!] (restricted)
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  1. Herings, P.J.J. & Laan, G. van der & Talman, D., 2001. "Quantity constrained equilibria," Discussion Paper 93, Tilburg University, Center for Economic Research. [Downloadable!]
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  2. DRéZE, Jacques, 2001. "Indeterminateness of equilibria and macroeconomics," CORE Discussion Papers 2001058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  3. Jacques H., DREZE & Jean-Jacques, HERINGS, 2007. "Kinky perceived demand curves and Keynes-Negishi equilibria," Discussion Papers (ECON - Département des Sciences Economiques) 2007037, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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  4. Herings, P.J.J. & Laan, G. van der & Talman, A.J.J., 2004. "Equilibria with coordination failures," Discussion Paper 107, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
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