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Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices

Author

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  • CITANNA, Alessandro
  • CRES, Herve
  • DREZE, Jacques

    (CORE, Universite Catholique de Louvain)

  • HERINGS, Jean-Jacques

    (University of Maastricht)

  • VILLANACCI, Antonio

    (Universita degli Studi, Firenze)

Abstract

In this paper the existence of unemployment is partly explained as being the result of coordination failures. It is shown that as a result of self-fulfilling pessimistic expectations, even at Walrasian prices, a continuum of equilibria results, among which an equilibrium with approximately no trade and a Walrasian equilibrium. These coordination failures also arise at other price systems, but then unemployment is the result of both a wrong price system and coordination failures. Some properties of the set of equilibria are analyzed. 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 neighborhood of a competitive allocation, when prices are Walrasian. For a specialized economy, a dynamic illustration is offered.

Suggested Citation

  • CITANNA, Alessandro & CRES, Herve & DREZE, Jacques & HERINGS, Jean-Jacques & VILLANACCI, Antonio, 2001. "Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices," Les Cahiers de Recherche 732, HEC Paris.
  • Handle: RePEc:ebg:heccah:0732
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    References listed on IDEAS

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    1. Mas-Colell,Andreu, 1990. "The Theory of General Economic Equilibrium," Cambridge Books, Cambridge University Press, number 9780521388702, November.
    2. Cooper,Russell, 1999. "Coordination Games," Cambridge Books, Cambridge University Press, number 9780521570176, December.
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    Citations

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    Cited by:

    1. Jacques H. Drèze & P. Jean-Jacques Herings, 2008. "Kinky perceived demand curves and Keynes-Negishi equilibria," International Journal of Economic Theory, The International Society for Economic Theory, pages 207-246.
    2. P. Herings, 2014. "General equilibrium and the new neoclassical synthesis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 437-477.
    3. Herings, P. Jean-Jacques & van der Laan, Gerard & Talman, Dolf, 2009. "Equilibria with coordination failures," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 23-37, January.
    4. Gersbach, Hans & Haller, Hans, 2010. "Hierarchical Trade," CEPR Discussion Papers 7764, C.E.P.R. Discussion Papers.
    5. Herings, P. Jean-Jacques & Konovalov, Alexander, 2009. "Constrained suboptimality when prices are non-competitive," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 43-58, January.
    6. Kokonas, Nikolaos, 2016. "Nominal rigidities equilibria in a non-Ricardian economy," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 108-119.
    7. Drèze, Jacques H. & Herings, P. Jean-Jacques, 2008. "Sequentially complete markets remain incomplete," Economics Letters, Elsevier, vol. 100(3), pages 445-447, September.
    8. Herings P.J.J., 2015. "Equilibrium and matching under price controls," Research Memorandum 001, Maastricht University, Graduate School of Business and Economics (GSBE).
    9. DRÈZE, Jacques, 2001. "Indeterminateness of equilibria and macroeconomics," CORE Discussion Papers 2001058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. P. Herings, 2014. "General equilibrium and the new neoclassical synthesis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 437-477.

    More about this item

    Keywords

    general equilibrium; underemployment; coordination failures; indeterminacy;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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