Coordination failures

Accident externalities are among the most important external costs of road transport. We study the regulation of these when insurance companies have market power. Using analytical models, we compare a public-welfare maximizing monopoly with a private profit-maximizing monopoly, and markets where two or more firms compete. A central mechanism in the analysis is the accident externality that individual drivers impose on one another via their presence on the road. Insurance companies will internalize some of these externalities, depending on their degree of market power. We derive optimal insurance premiums, and "manipulable" taxes that take into account the response of the firm to the tax rule applied by the government. Furthermore, we study the taxation of road users under different assumptions on the market structure. We illustrate our analytical results with numerical examples, in order to better understand the determinants of the relative performance of different market structures.

Accident externalities are among the most important external costs of road transport. We study the regulation of these when insurance companies have market power. Using analytical models, we compare a public-welfare maximizing monopoly with a private profit-maximizing monopoly, and markets where two or more firms compete. A central mechanism in the analysis is the accident externality that individual drivers impose on one another via their presence on the road. Insurance companies will internalize some of these externalities, depending on their degree of market power. We derive optimal insurance premiums, and "manipulable" taxes that take into account the response of the firm to the tax rule applied by the government. Furthermore, we study the taxation of road users under different assumptions on the market structure. We illustrate our analytical results with numerical examples, in order to better understand the determinants of the relative performance of different market structures.

Accident externalities are among the most important external costs of road transport. We study the regulation of these when insurance companies have market power. Using analytical models, we compare a public-welfare maximizing monopoly with a private profit-maximizing monopoly, and markets where two or more firms compete. A central mechanism in the analysis is the accident externality that individual drivers impose on one another via their presence on the road. Insurance companies will internalize some of these externalities, depending on their degree of market power. We derive optimal insurance premiums, and "manipulable" taxes that take into account the response of the firm to the tax rule applied by the government. Furthermore, we study the taxation of road users under different assumptions on the market structure. We illustrate our analytical results with numerical examples, in order to better understand the determinants of the relative performance of different market structures.

In this paper the authors investigate the effect of a Keynesian policy in tourism destinations where tourism products are mainly sold through 'direct sales' (decentralized solution) and the tourism market equilibrium is characterized by sticky prices and unemployment (coordination failure); thus the conditions for a Keynesian demand policy are verified. This policy is a Pareto improving solution with respect to the organization of sales by tour operators or destination managers (centralized solution), since tourism firms are not worseoff in terms of profits and there is an increase of tourism production as well as of employment.

along these highly illuminating talks was polished and condensed in the following pages. They are organized in the following way. The first section refers to Jacques' initial experiences in Belgium followed by his study of economics in the United States. The second section is devoted to the unity underlying an apparent diversity in his research interests. The third section is devoted to his more recent contributions to macroeconomics, which may be stated as "incomplete markets drive multiplicity of equilibria, calling for active economic policies." The interview concludes with his contribution to the promotion of research and, in particular, research institutions across Europe. Both Pierre Dehez and Omar Licandro were students of Jacques Drèze. Dehez and Drèze co-authored several papers, some of which are mentioned in the interview.

This article examines the reasons behind the failure of Tunisia's opposition to forge effective coordination and collaborative links during the Ben Ali's regime, focusing specifically on the inability and unwillingness of political parties to act in concert in order to challenge Ben Ali's authoritarian rule. Focussing on two attempts at opposition coordination in the 2000s (Rencontre Démocratique and 18 October Collectif), it demonstrates that a number of interconnected explanations are at the heart of this failure, which range from ideological differences and strategic divergence to personal rivalries amongst opposition leaders. The key contention of the article is that divisions within the political opposition were as important as regime repression in sustaining the Ben Ali regime for over 20 years in power. In addition, the article contends that these intra-opposition divisions and past coordination failures explain the absence of political parties at the helm of the 2011 uprising.

Abstract. The aim of this contribution is to study the notion of the period of production by taking into consideration the time-consuming nature of capital. Long delays between investment expenditures and receipts of profits from capital are indeed a remarkable property of the Austrian theory of capital. The study of the great essays of the neo-Austrian capital theory modeling allows us to postulate that there are at least two large contributing groups depending upon whether the production period is endogenous or exogenous. Our work consists in showing the well-founded methodology of the first current by suggesting a neo-Austrian inerpretation of the non-steady state behavior of the standard macroeconomic model. We show that the origin of economic cycles is the potential conflict between the producer’s plan of investment through the period of production and the inter-temporal choices of the consumers. Key Words: period of production, cycles, economic growth JEL classification: D9, C...

The aim of this contribution is to study the notion of the period of production by taking into consideration the time-consuming nature of capital. Long delays between investment expenditures and receipts of profits from capital are indeed a remarkable property of the Austrian theory of capital. The study of the great essays of the neo-Austrian capital theory modeling allows us to postulate that there are at least two large contributing groups depending upon whether the production period is endogenous or exogenous. Our work consists in showing the well-founded methodology of the first current by suggesting a neo-Austrian inerpretation of the non-steady state behavior of the standard macroeconomic model. We show that the origin of economic cycles is the potential conflict between the producer's plan of investment through the period of production and the inter-temporal choices of the consumers.

The aim of this paper is to assess how three seminal coordination failure models (Diamond ([1982] 1991), Howitt (1985) and Roberts (1987)) have fared against 'Keynes's programme'. The first part of the paper characterises Keynes's programme as consisting of the following four objectives: (a) demonstrating the existence of involuntary unemployment, (b) demonstrating that wage rigidity can be exonerated as its cause, (c) giving a general equilibrium interdependency explanation of the phenomenon within a perfect competition framework, and (d) demonstrating that demand stimulation is the proper remedy to suppress involuntary unemployment. In a second part, I claim that no correct assessment of Keynes's programme can be made without drawing a distinction between involuntary unemployment and underemployment. These prerequisites being settled, in part three I undertake the study of the three models to conclude that none of them succeed in achieving Keynes' programme in its entirety. In the last part of the paper, I raise the issue as to whether Keynesian economists should continue to fight for the involuntary unemployment concept. Résumé L'objectif de cet article est d'évaluer la mesure dans laquelle trois modèles pionniers de la théorie des échecs de coordination (Diamond ([1982] 1991), Howitt (1985) et Roberts (1987)) ont réussi à réaliser le projet poursuivi par Keynes dans la Théorie générale. Celui-ci est décrit dans une première partie de l'article comme consistant en quatre objectifs: (a) démontrer l'existence du chômage involontaire; (b) exonérer la possibilité qu'il soit causé par un salaire trop élevé; en donner une explication d'équilibre général dans un contexte de concurrence parfaite; (d) démontrer que le remède à appliquer est une stimulation de la demande agrégée. Dans une second partie, je souligne la nécessité de séparer les cas de chômage involontaire et de sous-emploi. La troisième partie de l'article est consacrée à l'examen des modèles. La conclusion qui y tirée est que, pour des raisons différentes, aucun des trois modèles ne réussit à pleinement réaliser le programme de Keynes. Enfin, dans le dernière partie, je m'interroge sur la question de savoir si les économistes keynésiens doivent continuer à se battre pour défendre le concept de chômage involontaire.

This paper examines the dynamic causal relationship between carbon dioxide (CO2) emissions, energy consumption, deforestation and agricultural production in LDCs for the period 1981-2010. The study applies co-integration and vector error correction modeling to examine the relationship. A long-run relationship is found to exist among the variables. That is, in the long-run energy consumption and deforestation are likely to affect CO2 emissions positively. This implies that over time, higher energy consumption and deforestation in LDCs give rise to more CO2 emissions, which is likely to lead to more environmental pollution. In the short-run, increases in deforestation and agricultural production causes higher CO2 emissions, but increases in energy consumption does not. The study suggests that the post-2015 development agenda should include sustainable agriculture as one of the goals, which would be low carbon by nature, and can be achieved by balanced and efficient use of fertilisers ...

This paper examines the dynamic causal relationship between carbon dioxide (CO2) emissions, energy consumption, deforestation and agricultural production in LDCs for the period 1981-2010. The study applies co-integration and vector error correction modeling to examine the relationship. A long-run relationship is found to exist among the variables. That is, in the long-run energy consumption and deforestation are likely to affect CO2 emissions positively. This implies that over time, higher energy consumption and deforestation in LDCs give rise to more CO2 emissions, which is likely to lead to more environmental pollution. In the short-run, increases in deforestation and agricultural production causes higher CO2 emissions, but increases in energy consumption does not. The study suggests that the post-2015 development agenda should include sustainable agriculture as one of the goals, which would be low carbon by nature, and can be achieved by balanced and efficient use of fertilisers ...

This paper provides a critical analysis of the post-2015 global development agenda that the international community plans to adopt. This agenda, produced by a high-level panel of eminent persons, is based on two previous agendas-the MDGs and the SDGs. This merger is motivated by similarities in their goals, interdependence between some of their goals, and the need for improved global governance, especially with respect to global public goods. However both agendas are ill-defined and a gap exists between ends and means. The new unique agenda has numerous and varied goals which are potentially in conflict. Furthermore, the world has changed a lot since 2000 and this necessitates a change in the global development agenda. Globally there have been growing economic and social inequalities, considerable population growth and the rise of emerging economies. Subjects of increasing concern include climate change, and other environmental and sustainability issues. These need to be given greater attention in any new economic and/or political agenda than previously. It is argued that developed countries might face a dilemma between altruistic aid policies and tied aid to encourage transformation towards a green economy. Despite its shortcomings, it can be argued that the new agenda provides scope for political compromise and flexibility. This is rational if a wide view of rationality is adopted.

This article deals with individual decision making under uncertainty (unknown probabilities). Risk (known probabilities) is not treated as a separate case, but as a sub-case of uncertainty. Many results from risk naturally extend to uncertainty. The Allais paradox, commonly applied to risk, also reveals empirical deficiencies of expected utility for uncertainty. The Ellsberg paradox reveals deviations from expected utility in a relative, not an absolute, sense, giving within-person comparisons: for some events (ambiguous or otherwise) subjects deviate more from expected utility than for other events. Besides aversion, many other attitudes towards ambiguity are empirically relevant.

Purpose This paper aims to investigate governance in service triads, specifically studying significant steering and connecting coordination failures, to reveal typically hidden characteristics and consequences. Design/methodology/approach This study focuses on coordination functions and activities between a buyer (a government department), a customer (a military service) and two service providers. Rich data on these normally confidential service ties are drawn from an official report into the causes of a fatal accident involving a UK reconnaissance aircraft and specifically from the evidence presented regarding the earlier development of its complex safety case. The authors also analysed a range of additional secondary data sources. Findings The authors examine the sources, drivers and manifestation of coordination failures. The authors uncover a series of coordination failures driven from the bridge position, revealing that while bounded rationality and opportunism influenced steer...

along these highly illuminating talks was polished and condensed in the following pages. They are organized in the following way. The first section refers to Jacques' initial experiences in Belgium followed by his study of economics in the United States. The second section is devoted to the unity underlying an apparent diversity in his research interests. The third section is devoted to his more recent contributions to macroeconomics, which may be stated as "incomplete markets drive multiplicity of equilibria, calling for active economic policies." The interview concludes with his contribution to the promotion of research and, in particular, research institutions across Europe. Both Pierre Dehez and Omar Licandro were students of Jacques Drèze. Dehez and Drèze co-authored several papers, some of which are mentioned in the interview.

In this paper the authors investigate the effect of a Keynesian policy in tourism destinations where tourism products are mainly sold through ‘direct sales' (decentralized solution) and the tourism market equilibrium is characterized by sticky prices and unemployment (coordination failure); thus the conditions for a Keynesian demand policy are verified. This policy is a Pareto improving solution with respect to the organization of sales by tour operators or destination managers (centralized solution), since tourism firms are not worse-off in terms of profits and there is an increase of tourism production as well as of employment.

We examine the relationship between productivity gaps inside an industry and the level of employment in the economy, in the context of a simple general equilibrium model which comprises a Cournot industry. We find that underemployment is minimized when such productivity gaps disappear.

Despite there are multilateral global problems in the World, there is still a lack of global networking to control them. The concept of international cooperation is not new but requires huge efforts and well-established strategies through trans-national cooperation network to share existing technology and policy to manage emerging and chronic threats on human kinds. Therefore, coordinating and support action plans for collaborative projects between countries are the key components after identification of fundamental problems. International cooperation carries out a broad range of activities and is the best approach to provide solutions for a better life for future generations. Keywords: International Cooperation, Environment, Globalization, Health, Quality of Life

In this paper the existence of unemployment is partly explained as being the result of coordination failures. It is shown that as a result of self-fulfilling pessimistic expectations, even at Walrasian prices, a continuum of equilibria results, among which an equilibrium with approximately no trade and a Walrasian equilibrium. These coordination failures also arise at other price systems, but then unemployment is the result of both a wrong price system and coordination failures. Some properties of the set of equilibria are analyzed. Generically, there exists a continuum of non-indifferent equilibrium allocations. Under a condition implied by gross substitutability, there exists a continuum of equilibrium allocations in the neighborhood of a competitive allocation, when prices are Walrasian. For a specialized economy, a dynamic illustration is offered.

The international community plans to adopt a post-2015 agenda based on two previous agendas – the MDGs and the SDGs. This merger is motivated by similarities in their goals and the need for improved global governance. Both agendas are ill-defined and a gap exists between ends and means. The new unique agenda has numerous and varied goals which are potentially in conflict. Developed countries might face a dilemma between altruistic aid policies and the need for tied aid to encourage transformation towards a green economy. However, it can be argued that the new agenda provides scope for political compromise and flexibility.

The paper gives an example of an economy where it is rational for a monopolist to control a competitive agent by setting both prices and quantities supplied. There are increasing returns in production, and the competitive agent has a discontinuous offer curve. The monopolist reaches points in the discontinuity by rationing.

The aggregate supply and demand model (AS-AD) posited by Keynes in the General Theory and elaborated by Weintraub and Davidson is analysed by inserting a CES production function. We perform a comparative statics analysis where the effects on the equilibrium level of employment and the price level of changes in a wide range of variables and parameters are worked out. The effect of changes in the money wage rate on the level of employment and the price level are found to be ambiguous. Finally, we argue that this approach provides a more consistent approach than conventional AS-AD analysis does.

The aggregate supply and demand model (AS-AD) posited by Keynes in the General Theory and elaborated by Weintraub and Davidson is analysed by inserting a CES production function. We perform a comparative statics analysis where the effects on the equilibrium level of employment and the price level of changes in a wide range of variables and parameters are worked out. The effect of changes in the money wage rate on the level of employment and the price level are found to be ambiguous. Finally, we argue that this approach provides a more consistent approach than conventional AS-AD analysis does.

THE IMPORTANCE of imperfect competition has long been recognised in many areas of economics, perhaps most obviously in industrial economics and in the labour economics of trade unions. Despite the clear divergence of output and labour markets from the competitive paradigm in most countries, macroeconomics where it has used microfoundations has tended to stick to the Walrasian market-clearing approach. However, over the last decade a shift has begun away from a concentration on the Walrasian price-taker towards a world where firms, unions and governments may be strategic agents. This paper takes stock of this burgeoning literature, focusing on the macroeconomic policy and welfare implications of imperfect competition, and contrasting them with those of Walrasian models.

IMPERFECT competition is a pervasive part of modern industrial economies, where high levels of concentration in product markets often coexist with unionised labour markets. Most standard macroeconomic models, however, assume that markets are perfectly competitive. This paper provides a simple framework in which we are able to explore some of the implications of imperfect competition for the macroeconomy, and to evaluate the adequacy of competitive macroeconomic models as "convenient simplifications". The results of the paper suggest that whilst some general features of competitive macromodels do carry over to an imperfectly competitive framework, others do not. Imperfect competition in the labour and product market can have a significant impact on the level of employment and the effectiveness of macroeconomic policy. Imperfect competition provides an explicit account of price and wage determination, and thus gives us a far greater insight into the macroeconomic structure of macroeconomic equilibrium than is possible in competitive models. This paper presents a simple model of imperfect competition with Walrasian features. The model is "Walrasian" both in some of its assumptions,0 and also in the properties of the model. What we have attempted to do is to take a standard neoclassical synthesis macromodel (e.g. Patinkin (1965), Branson (1979)) and introduce imperfect competition into the product and labour markets. We feel that this is a useful exercise for two reasons. Firstly, it provides a simple macro model of imperfect competition in which the causal mechanisms are very clear. In general, models of imperfect competition have tended to be rather complex, despite a recent trend towards simpler versions (e.g. Hart (1982), d'Aspremont et al. (1985)). Secondly, by adopting the standard neoclassical synthesis framework, it is easy to relate the model of imperfect competition to more familiar models. Imperfect competition in the product is modelled using conjecturalvariations Cournot equilibrium which captures a wide range of possible market solutions, encompassing perfect competition, Cournot, and joint profit maximisation as special cases. This approach contrasts with existing I would like to thank Ben Lockwood and Dennis Snower for many useful conversations. The first section of the paper was used for the M.Sc. macroeconomics course at Birkbeck in March 1985. The current revision owes much to comments made at the time. Financial support from the ESRC is gratefully acknowledged. Faults, alas, remain my own.

The theory of capital developed by Bohm-Bawerk and Wicksell emphasized the roundabout nature of the production process. The basic insight is that production necessarily involves time. One element of the production process is to determine the period of production, or the length of time from the start of production to its completion. Bohm-Bawerk and Wicksell emphasized the role of the interest rate in determining the period of production. In this paper, I develop an option games model of the decision to invest. Two firms have an opportunity to enter a market, but production takes time. Firms face a two-dimensional decision. Along one dimension , they determine the period of production and the prospective profit therefrom. Along another dimension, they determine whether or not they want to enter the market given the amount of time it will take to start generating revenue from production. Within this option games approach, the period of production can be understood as an endogenous time-to-build and I argue that this framework provides a tool for evaluating the claims of Bohm-Bawerk and Wicksell against the backdrop of competition and uncertainty. I evaluate the period of production decision and the option to enter decision when the real interest rate changes. I show that investment coordination failures are more likely to occur at lower levels of profitability when real interest rates are low. I conclude by discussing the implications of low interest rates for boom-bust investment cycles.

The theory of capital developed by Bohm-Bawerk and Wicksell emphasized the roundabout nature of the production process. The basic insight is that production necessarily involves time. One element of the production process is to determine the period of production, or the length of time from the start of production to its completion. Bohm-Bawerk and Wicksell emphasized the role of the interest rate in determining the period of production. In this paper, I develop an option games model of the decision to invest. Two firms have an opportunity to enter a market, but production takes time. Firms face a two-dimensional decision. Along one dimension , they determine the period of production and the prospective profit therefrom. Along another dimension, they determine whether or not they want to enter the market given the amount of time it will take to start generating revenue from production. Within this option games approach, the period of production can be understood as an endogenous time-to-build and I argue that this framework provides a tool for evaluating the claims of Bohm-Bawerk and Wicksell against the backdrop of competition and uncertainty. I evaluate the period of production decision and the option to enter decision when the real interest rate changes. I show that investment coordination failures are more likely to occur at lower levels of profitability when real interest rates are low. I conclude by discussing the implications of low interest rates for boom-bust investment cycles.

The international community plans to adopt a post-2015 agenda based on two previous agendas – the MDGs and the SDGs. This merger is motivated by similarities in their goals and the need for improved global governance. Both agendas are ill-defined and a gap exists between ends and means. The new unique agenda has numerous and varied goals which are potentially in conflict. Developed countries might face a dilemma between altruistic aid policies and the need for tied aid to encourage transformation towards a green economy. However, it can be argued that the new agenda provides scope for political compromise and flexibility.

This paper contrasts the views of expectational coordination in a stylised economic model under two polar assumptions: Strategic Complementarities (StCo) dominate or on the contrary are dominated by Strategic Substitutabilities (StSu). Although in the StCo case, 'uniqueness' often 'buys' 'eductive stability', the two issues are strikingly different in the second case. Furthermore if, in the first case, incomplete information often improves 'expectational coordination', it may have the converse effect in the StSu case. It is finally argued that, in macroeconomic contexts, StSu often unambiguously dominate StCo, even in a large class of models with Keynesian features, and even in an aggregate framework that magnifies the StCo effects. The 'remains' of StCo in general cases are discussed.

We propose an agent-based computational model in order to study a general equilibrium macro-economic system within a monopolistic competition setting. We address the framework of monopolistic competition introduced by a seminal contribution of Blanchard-Kiyotaki. We model a number of price-setting firms producing differentiated goods characterized by a constant elasticity of substitution. A representative buyer participates in the goods' markets, supplies labor to firms and sets the level of wage. We assume a bounded rationality framework where economic agents learn to optimize their own utility in a strategic economic context. The model is suited to be represented by a normal-form game in order to perform a convergence analysis of learning dynamics with respect to game-theoretical solutions. Results point out that the general equilibrium solution la Blanchard-Kiyotaki results to be both a Nash equilibrium and Pareto optima allocation, but it is not the most frequently played solution. Indeed, the most played solution is characterized by the highest competition on the side of producers, resembling the Bertrand-like solution on price competition, and by the highest representative buyer's welfare. A possible explanation of this finding is that in our setting the highest competition occurs in the price-setting behavior of firms who face residual demands, whereas the single representative buyer has not any opponent on wage setting thus being able to reach her optimal utility.