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

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.
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Submitted on : Thursday, March 11, 2010 - 3:05:59 PM
Last modification on : Thursday, January 11, 2018 - 6:19:31 AM

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Alessandro Citanna, Antonio Villanacci, Hervé Crès, Jacques H. Drèze. Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices. Journal of Mathematical Economics, Elsevier, 2001, Vol.36,n°3, pp.169-200. ⟨10.1016/S0304-4068(01)00075-1⟩. ⟨hal-00463215⟩

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