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Some coordination problems

University of British Columbia

The chapters in this thesis are each concerned with problems of coordination. The coordination issues examined here each arise in distinct situations and imply the need for a different modeling approach in each case. The first case, Chapter 2, considers gender discrimination in contemporary, competitive labour markets. It is sh9wn there that such discrimination can arise as an outcome of maximizing activities on the part of firms facing the problem of worker motivation in the light of imperfect monitorability. This is shown to lead to firms’ hiring practices (in particular discrimination) depending on the practices of other firms and consequently to labour market equilibria of discrimination and of non discrimination. It is shown that a policy of affirmative action can be useful in moving the labour market away from the discrimination equilibrium. The next chapter, Chapter 3, considers an avenue by which the structure of industries in an economy can affect the development of new technologies through its general equilibrium impact on profits relative to wages. It shows that a monopolistic structure in one industry, by increasing the share of profits in aggregate income, tends to increase the relative profitability of innovative activities elsewhere thereby leading to the creation of further monopoly rents which, in turn, feeds back into incentives for innovation thus causing a self-perpetuating cycle. This leads to the possibility of an economy exhibiting multiple steady states including a “Poverty trap” or situation of zero growth. The conditions under which multiple steady states exist are analyzed and the economy’s behaviour out of the steady state is also characterized. The role of government intervention, in the form of subsidies, direct provision of research and patent protection is also examined. Finally it is shown that the model can also explain the existence of clustering of innovations and consequent sporadic growth. The final substantive chapter, Chapter 4, centres on problems of investment coordination in the context of LDCs. These arise when the fall in the price of one good raises the demand for complementary goods, thereby implying that investment decisions leading to such price falls may not be privately undertaken whereas, when coordinated across sectors, such investments could be profitable. This chapter shows that the existence of multiple equilibria hinges upon the more restrictive Definition of complementarity between goods, namely, the Hicks definition. As a result, gross complementarity between goods (on its own), even though causing horizontal externalities, can not lead to the existence of multiple equilibria. A later section looks at gross complements in the presence of knowledge spillovers and shows, in contrast, that this can lead to multiple equilibria and coordination problems. The chapter also examines the social optimality of coordination in the Hicks complements case, showing that it is not always implied by the multiplicity of equilbria.

Thesis/Dissertation

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2009-06-03

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http://hdl.handle.net/2429/8702

Economics

University of British Columbia

UBCV

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