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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, January.
    2. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
    3. van Damme, E.E.C., 1991. "Equilibrium selection in 2 x 2 games," Other publications TiSEM 1c09a228-43e3-48ec-ad9c-0, Tilburg University, School of Economics and Management.
    4. Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 441-463.
    5. Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 131-146, December.
    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    7. Silvestre, Joaquim, 1993. "The Market-Power Foundations of Macroeconomic Policy," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 105-141, March.
    8. van Damme, E.E.C. & Carlsson, H., 1993. "Equilibrium selection in stag hunt games," Other publications TiSEM 8951ae88-c6e4-42e6-b253-b, Tilburg University, School of Economics and Management.
    9. Stephen Morris, "undated". "Co-operation and Timing," Penn CARESS Working Papers b8d506ba7aa15345b602bb4eb, Penn Economics Department.
    10. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    11. Carlsson, H. & Van Dame, E., 1991. "Equilibrium Selection in Stag Hunt Games," Papers 9170, Tilburg - Center for Economic Research.
    12. Kim, Youngse, 1996. "Equilibrium Selection inn-Person Coordination Games," Games and Economic Behavior, Elsevier, vol. 15(2), pages 203-227, August.
    13. Dixon,Huw David & Rankin,Neil, 1995. "The New Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521479479, May.
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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, Department of Economics, University of Bristol, UK.

    More about this item

    Keywords

    Microfoundations; co-ordination failure; equilibrium selection;

    JEL classification:

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

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