Abstract
The standard model of general equilibrium is extended by allowing for expectations about supply opportunities by households and firms. In this framework there is typically a 1-dimensional continuum of underemployment equilibria that range from equilibria with arbitrarily pessimistic expectations to equilibria with rather optimistic expectations. An example illustrates the model and highlights some features of underemployment equilibria. The multiplicity of equilibria has a natural interpretation as being the result of coordination failures. The results in this framework are compared with those of the fixprice literature. Extensions to a monetary economy are discussed.
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Jean-Jacques Herings, P. (2018). Underemployment Equilibria. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2562
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DOI: https://doi.org/10.1057/978-1-349-95189-5_2562
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