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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 21, No. 3, pp.485-500
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.

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