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Externalities, expectations, and growth

Vega-Redondo, Fernando (1999) 'Externalities, expectations, and growth.' Economic Theory, 14 (1). pp. 203-218. ISSN 0938-2259

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The paper studies a model of accumulation and growth where a continuum of heterogeneous firms play dynamically optimal strategies along a (rational expectations) equilibrium. The key feature of the model is that firms' technological decisions are assumed subject to both friction and external effects. This gives rise to a wide multiplicity of equilibrium behavior, any path of sustained growth requiring that the economy tackle a never-ending chain of fresh coordination problems. This setup is modelled as a (non-atomic) dynamic game, suitable conditions being provided that partially characterize when sustained growth is a possible (never the unique) equilibrium outcome.

Item Type: Article
Uncontrolled Keywords: Growth; Network externalities; Multiplicity of equilibrium.
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 06 Jan 2013 09:22
Last Modified: 06 Jan 2013 09:22

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