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Uncertainty and Endogenous Selection of Economic Equilibria

  • Pasquale Scaramozzino
  • Nir Vulkan

This paper presents a model of coordination 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 coordinate the level of activity to a Pareto-dominant outcome can be successfully implemented. Copyright Blackwell Publishing Ltd 2004.

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Article provided by Wiley Blackwell in its journal Metroeconomica.

Volume (Year): 55 (2004)
Issue (Month): 1 (02)
Pages: 22-40

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Handle: RePEc:bla:metroe:v:55:y:2004:i:1:p:22-40
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  1. Silvestre, Joaquim, 1993. "The Market-Power Foundations of Macroeconomic Policy," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 105-41, March.
  2. Stephen Morris, . "Co-operation and Timing," Penn CARESS Working Papers b8d506ba7aa15345b602bb4eb, Penn Economics Department.
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  4. Carlsson, H. & Van Dame, E., 1991. "Equilibrium Selection in Stag Hunt Games," Papers 9170, Tilburg - Center for Economic Research.
  5. van Damme, E.E.C., 1991. "Equilibrium selection in 2 x 2 games," Other publications TiSEM 1c09a228-43e3-48ec-ad9c-0, Tilburg University, School of Economics and Management.
  6. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  7. 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.
  8. Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 131-46, December.
  9. Carlsson, H. & van Damme, E.E.C., 1993. "Global games and equilibrium selection," Other publications TiSEM 49a54f00-dcec-4fc1-9488-4, Tilburg University, School of Economics and Management.
  10. 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, June.
  11. 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.
  12. Kim, Youngse, 1996. "Equilibrium Selection inn-Person Coordination Games," Games and Economic Behavior, Elsevier, vol. 15(2), pages 203-227, August.
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