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Endogenously determined price rigidities

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Summary

There exists an extensive literature about economies with price rigidities, where some constraints on the set of admissible price systems are exogenously given. In this paper a general equilibrium model extended by a political system is described where the price rigidities are endogenously chosen by political candidates. Sufficient conditions for the existence of a mixed strategy and a pure strategy equilibrium are given. Finally an example is discussed, where in equilibrium both political candidates propose price rigidities excluding the Walrasian equilibrium price system.

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Authors and Affiliations

  1. Department of Econometrics and CentER, Tilburg University, P.O. Box 90153, 5000, LE Tilburg, The Netherlands

    P. Jean-Jacques Herings

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  1. P. Jean-Jacques Herings
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Additional information

The author would like to thank Dolf Talman, Pieter Ruys, Jan van Geldrop, and an anonymous referee for their valuable comments on previous drafts of this paper. The author is financially supported by the Cooperation Centre Tilburg and Eindhoven Universities, The Netherlands. This research is part of the VF-program “Competition and Cooperation”.

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Herings, P.JJ. Endogenously determined price rigidities. Econ Theory 9, 471–498 (1997). https://doi.org/10.1007/BF01213850

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  • DOI: https://doi.org/10.1007/BF01213850

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