Template-type: ReDif-Paper 1.0
Author-Name: Citanna,Alessandro
Author-Name: Cres,Herve
Author-Name: Dreze,Jacques
Author-Name: Herings,P. Jean-Jacques
Author-Name: Villanacci,Antonio
Author-workplace-name: METEOR
Title: Underemployment of Resources and Self-fulfilling Beliefs: Non-Walrasian Allocations 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. 
Keywords: mathematical economics and econometrics ; 
Series: Research Memoranda
Creation-Date: 2001
Number: 003
File-URL: http://arno.unimaas.nl/show.cgi?fid=263
File-Format: application/pdf
File-Size: 579540
Handle: RePEc:unm:umamet:2001003