TY - JOUR
T1 - Strategic complementarity in business formation
T2 - Aggregate fluctuations and sunspot equilibria
AU - Chatierjee, Satyajit
AU - Cooper, Russell
AU - Ravikumar, B.
N1 - Funding Information:
Acknowledgements. The views expressed herein are solely those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Philadelphia or of the Federal Reserve System. We thank, without implicating, Jean-Michel Grandmont, Roger Guesnerie, Walter Heller, Peter Howitt, Ian Jewitt, Andrew John, Guy Laroque and John Weinberg and two referees for helpful comments on this problem. Seminar participants at the University of Maryland, the University of Paris I and participants at the "Rational Bubbles: Theory and Tests" conference made numerous helpful comments as well. We are grateful to the NSF, under SES-8822281, for providing financial assistance.
PY - 1993/10
Y1 - 1993/10
N2 - The possibility of sunspot equilibria and endogenous cycles are explored in a two-sector overlapping-generations model with entry. It is shown that if prospective entrants act oligopolistically as producers but competitively as consumers then a strategic complementarity between the entry decisions of agents across sectors and across time may arise. If the complementarity is sufficiently strong, the economy will have multiple, Pareto-ranked steady states. Stationary sunspot equilibria can then be constructed as a randomization between allocations in the neighbourhood of the multiple steady states providing a source of aggregate fluctuations.
AB - The possibility of sunspot equilibria and endogenous cycles are explored in a two-sector overlapping-generations model with entry. It is shown that if prospective entrants act oligopolistically as producers but competitively as consumers then a strategic complementarity between the entry decisions of agents across sectors and across time may arise. If the complementarity is sufficiently strong, the economy will have multiple, Pareto-ranked steady states. Stationary sunspot equilibria can then be constructed as a randomization between allocations in the neighbourhood of the multiple steady states providing a source of aggregate fluctuations.
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U2 - 10.2307/2298100
DO - 10.2307/2298100
M3 - Article
AN - SCOPUS:84960595671
SN - 0034-6527
VL - 60
SP - 795
EP - 811
JO - Review of Economic Studies
JF - Review of Economic Studies
IS - 4
ER -