Endogenous public policy and multiple equilibria

Gerhard Glomm, B. Ravikumar

Research output: Contribution to journalArticle

22 Scopus citations

Abstract

One of the well known roles of public policy in models with indeterminacy is to reduce the set of equilibria. However, agents' expectations regarding future policy may be self fulfilling when public policy is endogenized. We show that a simple overlapping generations economy with public education may yield multiple equilibria. Under a laissez-faire system, our model has a unique equilibrium. Thus, the presence of public policy may generate, rather than eliminate, multiple equilibria.

Original languageEnglish (US)
Pages (from-to)653-662
Number of pages10
JournalEuropean Journal of Political Economy
Volume11
Issue number4
DOIs
StatePublished - Apr 1996

Keywords

  • Multiple equilibria
  • Public policy

ASJC Scopus subject areas

  • Economics and Econometrics
  • Political Science and International Relations

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