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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 : Friday, November 5, 2021 - 12:12:06 PM
Last modification on : Tuesday, December 7, 2021 - 4:26:04 PM

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  • HAL Id : hal-03416643, version 1
  • SCIENCESPO : 2441/10268

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Alessandro Citanna, Hervé Crès, Jacques Drèze, Jean-Jacques Herings, Antonio Villanacci. Continua of underemployment equilibria reflecting coordination failures, also at Walrasian prices. Journal of Mathematical Economics, Elsevier, 2001, 36 (3), pp.169 - 200. ⟨hal-03416643⟩

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