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Uncertainty and Endogenous Selection of Economic Equilibria

Author

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  • Pasquale Scaramozzino

    (University of Rome II - Faculty of Economics SOAS, University of London - Department of Financial and Management Studies)

  • Nir Vulkan

    (University of Oxford - Sa•d Business School)

Abstract

This paper presents a model of co-ordination failures based on market power and local oligopoly. The economy exhibits a multiplicity of Pareto-ranked equilibria. The introduction of uncertainty generates an endogenous equilibrium selection process, due to a strategic use of information by firms. The economy is more likely to settle on some equilibria than on others. We argue that a full understanding of these robustness criteria is needed before any policy which is intended to help co-ordinate the level of activity to a Pareto dominant outcome can be successfully implemented.

Suggested Citation

  • Pasquale Scaramozzino & Nir Vulkan, 2003. "Uncertainty and Endogenous Selection of Economic Equilibria," CEIS Research Paper 5, Tor Vergata University, CEIS.
    • Handle: RePEc:rtv:ceisrp:5
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    References listed on IDEAS

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    1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, April.
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    Cited by:

    1. Pasquale Scaramozzino & Jonathan Temple & Nir Vulkan, 2005. "Implementation Cycles in the New Economy," Bristol Economics Discussion Papers 05/569, School of Economics, University of Bristol, UK.
    2. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.

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    More about this item

    Keywords

    Microfoundations; co-ordination failure; equilibrium selection;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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