EC207 Lecture Notes - Lecture 16: Autarky
Document Summary
Coordination failures occur when agents inability to coordinate their actions leads to an outcome that makes all agents worse off. When complementaries are present, an action taken by one firm increases the incentives for other agents to take similar action. Often involve investments whose return depends on other investments being made by other agents. These models can be diagrammed by graphing an s-shaped function and a 45 degree line. If firms expect a higher level of investment, firms would want to invest more. An economy can get stuck in a low growth rate largely because the economy is expected to have a low investment rate. Market forces can bring the economy to equilibria (view graph on slide 28) Conditions for multiple equilibria: -inter temporal effects -urbanization effects - infrastructure effects. Equilibria are: stable: function crosses the 45 degree line from above unstable: function crosses the 45 degree line from below. The big push model: (see slide 42 diagram)
