Friction and the Multiplicity of Equilibria

In familiar models, a decrease in the friction facing mobile factors (e.g., lowering their adjustment costs) increases a coordination problem, leading to more circumstances where there are multiple equilibria. We show that a decrease in friction can decrease coordination problems if, for example, a production externality arises from a changing stock of knowledge or a changing environmental stock. In general, the relation between the amount of friction that mobile factors face and the likelihood of multiple equilibria is non-monotonic.


Issue Date:
2005
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/25120
Total Pages:
35
JEL Codes:
C61; J21; O13; R23
Series Statement:
CUDARE Working Paper 960R




 Record created 2017-04-01, last modified 2017-04-04

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