Review of Economic Studies Vol. 60 No. 4 1993
Strategic Complementarity in Business Formation: Aggregate Fluctuations and Sunspot Equilibria
Abstract
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.
- DOI
- 10.2307/2298100
- Volume
- 60
- Issue
- 4
- Pages
- 795-811
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref