Uncertainty and Endogenous Selection of Economic Equilibria

19 Pages Posted: 10 Apr 2004

See all articles by Pasquale Scaramozzino

Pasquale Scaramozzino

University of Rome II - Faculty of Economics; University of London - School of Oriental and African Studies (SOAS); University of London - Centre for Financial and Management Studies (CeFIMS)

Nir Vulkan

University of Oxford - Said Business School

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Abstract

This paper presents a model of coordination failures based on market power and local oligopoly. The economy exhibits a multiplicity of Pareto-ranked equilibria. The introduction of uncertainty generates an endogenous equilibrium selection process, due to a strategic use of information by firms. The economy is more likely to settle on some equilibria than on others. We argue that a full understanding of these robustness criteria is needed before any policy which is intended to help coordinate the level of activity to a Pareto-dominant outcome can be successfully implemented.

Suggested Citation

Scaramozzino, Pasquale and Vulkan, Nir, Uncertainty and Endogenous Selection of Economic Equilibria. Metroeconomica, Vol. 55, pp. 22-40, February 2004. Available at SSRN: https://ssrn.com/abstract=513785

Pasquale Scaramozzino (Contact Author)

University of Rome II - Faculty of Economics ( email )

Via Columbia n.2
Rome, 00100
Italy

University of London - School of Oriental and African Studies (SOAS) ( email )

Thornhaugh Street
Russell Square: College Buildings 541
London, WC1H 0XG
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University of London - Centre for Financial and Management Studies (CeFIMS)

Thornhaugh Street
London, WC1H 0XG
United Kingdom

Nir Vulkan

University of Oxford - Said Business School ( email )

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Oxford, OX1 1HP
Great Britain
+44 01865 288929, or 288338 (Phone)
+44 01865 288805 (Fax)

HOME PAGE: https://vulkan.worc.ox.ac.uk/

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