XML

Seoul Journal of Economics - Vol. 21 , No. 3
[Paper List] [Go to Volume List]

[ Article ]
Seoul Journal of Economics - Vol. 21, No. 3, pp. 485-500
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2008
Received 04 Oct 2007 Revised 15 Jul 2008

On the Stability of Heller’s Coordination Failure Model
Shin Kawai
Research Fellow, Graduate School of Economics, Nagoya University, Furo-cho, Chikusa-ku, Nagoya, 464-8601, Japan, Tel: +81-52-789-2375, Fax: +81-52-789-2375 (skawai@soec.nagoya-u.ac.jp)

JEL Classification: D43, D58, E12

Abstract

This paper reconsiders Heller's multisector Cournot-Nash model (Heller 1986) hat is known as one of the representative models of coordination failure. In Heller's model, there are multiple Pareto-anked equilibria if the price elasticity of demand is highly inelastic near the subsistence level. This paper analyzes the stability of those equilibria and shows that the inferior equilibrium is unstable while the superior equilibrium is stable. Therefore, the coordination failure does not emerge in Heller's model.

Keywords: Coordination failure, Cournot, Stability
Acknowledgments

I am grateful to In Ho Lee (editor) and two anonymous referees for several insightful comments that significantly improved the paper. I thank Masao Fukuoka, Tadashi Minagawa, and Makoto Tawada for their profound help at different stages in this research project. I also thank Ichiro Takahashi and seminar participants at Soka University. None of them is responsible for any errors or shortcomings.

References
1. Blanchard, O., and Kiyotaki, N. “Monopolistic Competition and the Effects of Aggregate Demand.” American Economic Review 77 (No. 4 1987): 647-66.
2. Cooper, R. “Equilibrium Selection in Imperfectly Competitive Economies with Multiple Equilibria.” Economic Journal 104 (No. 426 1994): 1106-23.
3. Cooper, R. Coordination Games ― Complementarities and Macroeconomics ―. Cambridge University Press, 1999.
4. Cooper, R., and John, A. “Coordinating Coordination Failures in Keynesian Models.” Quarterly Journal of Economics 103 (No. 3 1988): 441-63.
5. Hart, O. “A Model of Imperfect Competition with Keynesian Features.” Quarterly Journal of Economics 97 (No. 1 1982): 109-38.
6. Heller, W. “Coordination Failure Under Complete Markets with Applications to Effective Demand.” In Walter Heller, Ross Starr and David Starrett (eds.), Equilibrium Analysis, Essays in Honor of Kenneth J, Arrow. Cambridge: Cambridge University Press, Vol. II, pp. 155-75, 1986.
7. Kawai, S., and Minagawa, T. “Macroeconomic Implications of Coordination Failure in a Multisector Cournot-Nash Model.” RIMS Kokyuroku No. 1488, 202-15, 2006.
8. Romer, D. Advanced Macroeconomics. McGraw-Hill, 1996.
 

Editorial Office, Seoul Journal of Economics, Institute of Economic Research, Seoul National University 599 Gwanangno, Gwanak-gu, Seoul 151-746, Korea
Tel: +82-2-880-5434 | Fax: +82-2-888-4454 | E-mail: sje@plaza.snu.ac.kr
Copyright (c) 2020 SJE. All rights reserved.