We analyse the implications of multiple Nash equilibria in consumption patterns. Multiple equilibrium theory has been extensively used in macroeconomics to explain the convergence of the system to a low inefficient equilibrium. Its microfoundations appear very abstract and stylised. It has been recognised that a rigourous microfoundation matters above all when policy and dynamic implications are considered. For example, Cahuc and Kempf (1997) show that, just by assuming a restrictive number of players, the standard result of Pareto superior simultaneous solutions on staggered decisions is not confirmed, or that introducing a more specific framework, the general expansionary demand policies do not generate the beneficial effects predicted by general stylised models (see Pagano (1990) for a discussion). The main contribution of this paper is to provide a more specific microfoundation of multiple equilibria in consumption theory.
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Paper provided by Department of Economics, University of York in its series Discussion Papers with number
04/09.
Length: Date of creation: Date of revision: Handle: RePEc:yor:yorken:04/09
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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 C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
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