Coordinating Coordination Failures in Keynesian Models
This paper focuses on the importance of strategic complementarities in agents' payoff functions as a basis for macroeconomic coordination failures. Strategic complementarities arise when the optimal strategy of an agent depends positively upon the strategies of the other agents. The authors first analyze an abst ract game and find that multiple equilibria and a multiplier process may arise when strategic complementarities are present. Often these e quilibria can be Pareto ranked. The authors then place additional eco nomic content on the analysis of this game by considering strategic c omplementaries arising from production functions, matching technologi es, and commodity demand functions in a multisector, imperfectly comp etitive economy. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Volume (Year): 103 (1988)
Issue (Month): 3 (August)
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