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Underemployment of Resources and Self-Fulfilling Beliefs: Nonwalrasian Allocations at Walrasian Prices

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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.
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Dates and versions

hal-01064886 , version 1 (17-09-2014)

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Alessandro Citanna, Hervé Crès, Jacques H Drèze, P. Jean-Jacques Herings, Antonio Villanacci. Underemployment of Resources and Self-Fulfilling Beliefs: Nonwalrasian Allocations at Walrasian Prices. 2001. ⟨hal-01064886⟩
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