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Coordinating Coordination Failures in Keynesian Models

Russell Cooper¹; Andrew John²

¹ University of Iowa · ² Michigan State University

This paper focuses on the importance of strategic complementarities in agents' payoff functions as a basis for macroeconomic coordination failures. Strategic complementarities arise when the optimal strategy of an agent depends positively upon the strategies of the other agents. We first analyze an abstract game and find that multiple equilibria and a multiplier process may arise when strategic complementarities are present. Often these equilibria can be Pareto ranked. We then place additional economic content on the analysis of this game by considering strategic complementarities arising from production functions, matching technologies, and commodity demand functions in a multisector, imperfectly competitive economy.

DOI

10.2307/1885539

Volume

103 (3)

Pages

441

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