Harashima, Taiji (2009): Depression as a Nash Equilibrium Consisting of Strategies of Choosing a Pareto Inefficient Transition Path.
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This paper shows that a Nash equilibrium consisting of strategies of choosing a Pareto inefficient transition path is selected by households even without frictions as a result of the revealed government failure in supervision of financial markets. The Pareto inefficiency causes the generation of many of the phenomena observed in a depression (e.g., a persistently large amount of unutilized resources), and it is not necessary to use “animal spirits” to explain the generation of a depression. The revealed government failure in the supervision of financial markets and the resulting increased policy-induced uncertainty makes non-cooperative and risk-averse households behave more myopically, resulting in a Nash equilibrium of a Pareto inefficient path. When the failure of financial supervision is revealed, the household rate of time preference shifts upwards when the expected variance of steady-state consumption increases and/or its expected value shifts downwards.
|Item Type:||MPRA Paper|
|Original Title:||Depression as a Nash Equilibrium Consisting of Strategies of Choosing a Pareto Inefficient Transition Path|
|Keywords:||Depression; Pareto efficiency; Nash equilibrium; Time preference; Financial supervision|
|Subjects:||D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D50 - General
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E21 - Consumption; Saving; Wealth
|Depositing User:||Taiji Harashima|
|Date Deposited:||03. Dec 2009 05:43|
|Last Modified:||19. Feb 2013 11:47|
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