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Uncertainty and Endogenous Selection of Economic Equilibria

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Listed author(s):
  • 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.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 5.

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Date of creation: 24 Jun 2003
Handle: RePEc:rtv:ceisrp:5
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Keywords: Microfoundations; co-ordination failure; equilibrium selection;

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Find related papers by JEL classification:
  • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
  • E00 - Macroeconomics and Monetary Economics - - General - - - General

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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, July.
  2. Van Damme, E., 1991. "Equilibrium Selection in 2 x 2 Games," Papers 9108, Tilburg - Center for Economic Research.
  3. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
  4. Stephen Morris, "undated". "Co-operation and Timing," Penn CARESS Working Papers b8d506ba7aa15345b602bb4eb, Penn Economics Department.
  5. 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.
  6. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  7. Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 131-146, December.
  8. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
  9. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  10. Silvestre, Joaquim, 1993. "The Market-Power Foundations of Macroeconomic Policy," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 105-141, March.
  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, February.
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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.

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