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Multiple Equilibria with Externalities

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  • Emanuela Randon

Abstract

We analyse the implications of multiple Nash equilibria in consumption patterns. Multiple equilibrium theory has been extensively used in macroeconomics to explain the convergence of the system to a low inefficient equilibrium. Its microfoundations appear very abstract and stylised. It has been recognised that a rigourous microfoundation matters above all when policy and dynamic implications are considered. For example, Cahuc and Kempf (1997) show that, just by assuming a restrictive number of players, the standard result of Pareto superior simultaneous solutions on staggered decisions is not confirmed, or that introducing a more specific framework, the general expansionary demand policies do not generate the beneficial effects predicted by general stylised models (see Pagano (1990) for a discussion). The main contribution of this paper is to provide a more specific microfoundation of multiple equilibria in consumption theory.

Suggested Citation

  • Emanuela Randon, "undated". "Multiple Equilibria with Externalities," Discussion Papers 04/09, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:04/09
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    References listed on IDEAS

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    Cited by:

    1. Athanasios Lapatinas & Anastasia Litina & Eftichios S. Sartzetakis, 2011. "Corruption and Environmental Policy: An Alternative Perspective," Working Papers 2011.23, Fondazione Eni Enrico Mattei.
    2. Athanasios Lapatinas & Anastasia Litina & Eftichios Sophocles Sartzetakis, 2014. "Is Abatement Effective in the Presence of Corruption? A Theoretical Exploration," CREA Discussion Paper Series 14-29, Center for Research in Economic Analysis, University of Luxembourg.
    3. Tan, Hi-Lin, 2006. "Prices in Networks," MPRA Paper 62984, University Library of Munich, Germany.

    More about this item

    Keywords

    Multiple Equilibria; Consumption Externalities;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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