Have the Early Coordination Failures Models Achieved Keynes's Programme ?
The aim of this paper is to assess how three seminal coordination failure models (Diamond ( ), Howitt  and Roberts ) have fared against ″Keynes’s programme″. The first part of the paper characterises Keynes’s programme as consisting of the following four objectives: (a) demonstrating the existence of involuntary unemployment, (b) demonstrating that wage rigidity can be exonerated as its cause, (c) giving a general equilibrium interdependency explanation of the phenomenon within a perfect competition framework, and (d) demonstrating that demand stimulation is the proper remedy to suppress involuntary unemployment. In a second part, I claim that no correct assessment of Keynes’s programme can be made without drawing a distinction between involuntary unemployment and underemployment. These prerequisites being settled, in part three I undertake the study of the three models to conclude that none of them succeed in achieving Keynes’ programme in its entirety. In the last part of the paper, I raise the issue as to whether Keynesian economists should continue to fight for the involuntary unemployment concept.
Volume (Year): 115 (2005)
Issue (Month): 4 ()
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- Axel Leijonhufvud, 1983. "What Would Keynes Have Thought of Rational Expectations?," UCLA Economics Working Papers 299, UCLA Department of Economics.
- Weitzman, Martin L, 1982. "Increasing Returns and the Foundations of Unemployment Theory," Economic Journal, Royal Economic Society, vol. 92(368), pages 787-804, December.
- Michel, DE VROEY, 2005. "Involuntary Unemployment : the Elusive Quest for a Theory," Discussion Papers (ECON - Département des Sciences Economiques) 2005004, Université catholique de Louvain, Département des Sciences Economiques.
- Peter Howitt, 2002. "Looking Inside the Labor Market: A Review Article," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 125-138, March.
- Howitt, Peter, 1985. "Transaction Costs in the Theory of Unemployment," American Economic Review, American Economic Association, vol. 75(1), pages 88-100, March.
- Leijonhufvud, Axel, 1983. "What would Keynes have thought of rational expectations?," Discussion Papers, Series I 177, University of Konstanz, Department of Economics.
- Drazen, Allan, 1987. "Reciprocal externality models of low employment," European Economic Review, Elsevier, vol. 31(1-2), pages 436-443.
- Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 441-463.
- J. A. Kregel, 1987. "The Effective Demand Approach to Employment and Inflation Analysis," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 10(1), pages 133-145, October.
- 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 856-874, December.
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