Equilibria with Coordination Failures

CentER Discussion Paper No. 2004-107

31 Pages Posted: 7 Dec 2004

See all articles by P. Jean-Jacques Herings

P. Jean-Jacques Herings

Tilburg University

Gerard van der Laan

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Dolf Talman

Tilburg University - Department of Econometrics & Operations Research

Date Written: October 2004

Abstract

This paper extends the recent literature on equilibria with coordination failures to arbitrary convex sets of admissible prices. We introduce a new equilibrium concept, called quantity constrained equilibrium (QCE), giving a unified treatment to all cases considered in the literature so far. At a QCE the expected trade opportunities on supply and demand are completely determined by a rationing vector satisfying that the prevailing price system maximizes the value of the rationing vector within the set of admissible prices. When the set of admissible prices is compact, we show the existence of a connected set of non-trivial QCEs. This set connects two trivial no-trade equilibria, one with completely pessimistic expectations concerning supply opportunities and one with completely pessimistic expectations concerning demand opportunities. Moreover, the set contains for every commodity a generalized Dreze equilibrium, being a QCE at which for that commodity no binding trade opportunities on both supply and demand are expected, and also a generalized supply-constrained equilibrium at which no binding constraints on demand opportunities are expected and for at least one commodity also not on supply. We apply this main result to several special cases, and also discuss the case of an unbounded set of admissible prices.

Keywords: Exchange economy, rationing, coordination failures, price rigidities

JEL Classification: C62, C63, C68, D51

Suggested Citation

Herings, P. Jean-Jacques and van der Laan, Gerard and Talman, Dolf J. J., Equilibria with Coordination Failures (October 2004). CentER Discussion Paper No. 2004-107, Available at SSRN: https://ssrn.com/abstract=627421 or http://dx.doi.org/10.2139/ssrn.627421

P. Jean-Jacques Herings (Contact Author)

Tilburg University ( email )

Department of Econometrics and Operations Research
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4668797 (Phone)
5000 LE (Fax)

HOME PAGE: http://https://sites.google.com/view/jean-jacques-herings/home

Gerard Van der Laan

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Department of Econometrics and Tinbergen Institute
1081 HV Amsterdam
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Dolf J. J. Talman

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands
+31 13 466 2346 (Phone)