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Journal Articles Journal of Mathematical Economics Year : 2001

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

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Antonio Villanacci
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Jacques H. Drèze
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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.

Dates and versions

hal-00463215 , version 1 (11-03-2010)

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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, 2001, Vol.36,n°3, pp.169-200. ⟨10.1016/S0304-4068(01)00075-1⟩. ⟨hal-00463215⟩

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