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Externalities, expectations, and growth


  • Fernando Vega-Redondo

    () (Facultad de EconÕmicas and Instituto Valenciano de Investigaciones EconÕmicas, Universidad de Alicante, E-03071 Alicante, SPAIN)


The paper studies a model of accumulation and growth where a continuum of heterogeneous firms play dynamically optimal strategies along a (rational expectations) equilibrium. The key feature of the model is that firms' technological decisions are assumed subject to both friction and external effects. This gives rise to a wide multiplicity of equilibrium behavior, any path of sustained growth requiring that the economy tackle a never-ending chain of fresh coordination problems. This setup is modelled as a (non-atomic) dynamic game, suitable conditions being provided that partially characterize when sustained growth is a possible (never the unique) equilibrium outcome.

Suggested Citation

  • Fernando Vega-Redondo, 1999. "Externalities, expectations, and growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(1), pages 203-218.
  • Handle: RePEc:spr:joecth:v:14:y:1999:i:1:p:203-218
    Note: Received: May 25, 1995; revised version: March 25, 1998

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    More about this item


    Growth · Network externalities · Multiplicity of equilibrium.;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General


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