Continua of underemployment equilibria
In this paper the existence of unemployment is partly explained as being the result of coordination failures. This is achieved by considering a standard general equilibrium model and splitting the set of commodities in two groups. The first group contains commodities like gold. The prices of these commodities are fully flexible, even in the short run, and their markets always clear. The prices of the commodities in the second group are rigid in the short run (for instance labour services or some consumer goods) and households and firms may expect restricted supply possibilities. Whe show that such expectations are selfenforcing, even if all prices of commodities in the second group are competitive. In that case it is shown that as a result of coordination failures a continuum of equilibria results, among which an equilibrium with approximately no trade inthe commodities of the second group, and a Walrasian equilibrium. In fact, these coordination failures also arise at other price systems, but then unemployment is the result of both a wrong price system and coordination failures. Moreover, some properties of the set of equilibria are analysed. Generically, there exists a continuum of non-indifferent equilibrium allocations. Under a condition implied by gross substitutability, there exists a continuum of equilibrium allocations in the neighbourhood of a competitive allocation. Examples show that the latter property may not hold in general.
|Date of creation:||01 Aug 1998|
|Date of revision:|
|Contact details of provider:|| Postal: Voie du Roman Pays 34, 1348 Louvain-la-Neuve (Belgium)|
Fax: +32 10474304
Web page: http://www.uclouvain.be/core
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Herings, P.J.J., 1993.
"On the connectedness of the set of constrained equilibria,"
1993-63, Tilburg University, Center for Economic Research.
- Herings, J.J., 1993. "On the Connectedness of the Set of Constrained Equilibria," Papers 9363, Tilburg - Center for Economic Research.
- Jean-Pascal Benassy, 1975. "Neo-Keynesian Disequilibrium Theory in a Monetary Economy," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 503-523.
- Jones, Larry E & Manuelli, Rodolfo E, 1992.
"The Coordination Problem and Equilibrium Theories of Recessions,"
American Economic Review,
American Economic Association, vol. 82(3), pages 451-71, June.
- Larry E. Jones & R. E. Manuelli, 1987. "The Coordination Problem and Equilibrium Theories of Recessions," Discussion Papers 753, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Laroque, Guy & Polemarchakis, Heraklis, 1978. "On the structure of the set of fixed price equilibria," Journal of Mathematical Economics, Elsevier, vol. 5(1), pages 53-69, March.
- Silvestre, Joaquin, 1980. "Continua of Hahn-unsatisfactory equilibria : Some examples," Economics Letters, Elsevier, vol. 5(3), pages 201-208.
- Mas-Colell,Andreu, 1990.
"The Theory of General Economic Equilibrium,"
Cambridge University Press, number 9780521388702.
- Herings, P Jean-Jacques, 1996.
"Equilibrium Existence Results for Economies with Price Rigidities,"
Springer, vol. 7(1), pages 63-80, January.
- P. Jean-Jacques Herings, 1995. "Equilibrium existence results for economies with price rigidities," Economic Theory, Springer, vol. 7(1), pages 63-80.
- Movshovich, Solomon M., 1994. "A price adjustment process in a rationed economy," Journal of Mathematical Economics, Elsevier, vol. 23(4), pages 305-321, July.
- Benassy, Jean-Pascal, 1993. "Nonclearing Markets: Microeconomic Concepts and Macroeconomic Applications," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 732-61, June.
- Kurz, Mordecai, 1982. "Unemployment equilibrium in an economy with linked prices," Journal of Economic Theory, Elsevier, vol. 26(1), pages 100-123, February.
- 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 856-74, December.
- Laroque, Guy, 1978. "The Fixed Price Equilibria: Some Results in Local Comparative Statics," Econometrica, Econometric Society, vol. 46(5), pages 1127-54, September.
- Walter Perrin Heller & Ross M. Starr, 1979. "Unemployment Equilibrium with Myopic Complete Information," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 339-359.
- van der Laan, Gerard, 1980. "Equilibrium under Rigid Prices with Compensation for the consumers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 63-73, February.
- Y. Younes, 1975. "On the Role of Money in the Process of Exchange and the Existence of a Non-Walrasian Equilibrium," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 489-501.
- van der LAAN, Gerard, .
"Simplicial approximation of unemployment equilibria,"
CORE Discussion Papers RP
467, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Laan, Gerard van der, 1982. "Simplicial approximation of unemployment equilibria," Journal of Mathematical Economics, Elsevier, vol. 9(1-2), pages 83-97, January.
- Polterovich, V. M. & Spivak, V. A., 1983. "Gross substitutability of point-to-set correspondences," Journal of Mathematical Economics, Elsevier, vol. 11(2), pages 117-140, April.
- Dreze, Jacques H, 1975. "Existence of an Exchange Equilibrium under Price Rigidities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 301-20, June.
When requesting a correction, please mention this item's handle: RePEc:cor:louvco:1998045. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.