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Uncertainty and Endogenous Selection of Economic Equilibria

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  • Pasquale Scaramozzino

    ()
    (University of Rome II - Faculty of Economics SOAS, University of London - Department of Financial and Management Studies)

  • Nir Vulkan

    ()
    (University of Oxford - Sa•d Business School)

Abstract

This paper presents a model of co-ordination failures based on market power and local oligopoly. The economy exhibits a multiplicity of Pareto-ranked equilibria. The introduction of uncertainty generates an endogenous equilibrium selection process, due to a strategic use of information by firms. The economy is more likely to settle on some equilibria than on others. We argue that a full understanding of these robustness criteria is needed before any policy which is intended to help co-ordinate the level of activity to a Pareto dominant outcome can be successfully implemented.

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 5.

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Date of creation: 24 Jun 2003
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Handle: RePEc:rtv:ceisrp:5

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Related research

Keywords: Microfoundations; co-ordination failure; equilibrium selection;

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References

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  1. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  2. Carlsson, H. & Damme, E.E.C. van, 1993. "Global games and equilibrium selection," Open Access publications from Tilburg University urn:nbn:nl:ui:12-154416, Tilburg University.
  3. Silvestre, J., 1991. "The Market-Power Foundations of Macroeconomic Policy," Papers 374, California Davis - Institute of Governmental Affairs.
  4. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  5. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, January.
  6. Stephen Morris, . ""Co-operation and Timing''," CARESS Working Papres 95-05, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  7. Van Damme, E., 1991. "Equilibrium Selection in 2 x 2 Games," Papers 9108, Tilburg - Center for Economic Research.
  8. Carlsson, H. & Damme, E.E.C. van, 1991. "Equilibrium selection in stag hunt games," Discussion Paper 1991-70, Tilburg University, Center for Economic Research.
  9. Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 131-46, December.
  10. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  11. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
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Cited by:
  1. Scaramozzino, Pasquale & Temple, Jonathan & Vulkan, Nir, 2005. "Implementation Cycles in the New Economy," CEPR Discussion Papers 5032, C.E.P.R. Discussion Papers.

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