Introduction

Many of the models in this book involve competitive equilibrium coordination failures; that is, situations in which an equilibrium outcome, which is Pareto dominated by another equilibrium, is realized by independently acting agents. In the previous paper, I explored team production and the nature of those equilibrium coordination failures. That discussion, and the other discussions in this book, may have made it seem that equilibrium coordination failures are substitutes for models of disequilibrium. That is wrong. Nothing in the equilibrium coordination failure approach rules out the possibility, or, indeed, the importance and pervasiveness, of disequilibrium. That is why I noted in the other paper that other types of coordination failures were possible.

One of those types can be found in an earlier Keynesian coordination tradition, which was concerned with disequilibrium behavior (as noted, for example, in Van Huyck, Battalio, and Beil (1990)). In this earlier tradition agents are unsure of what to do because of the multiplicity of possible equilibrium strategies, and guess differently. The traditional noneconomic example of disequilibrium is to imagine a country in which none of the drivers are sure whether the “drive on the right” or the “drive on the left” convention applies. The economic concern with disequilibium may trace back to Keynes's famous “beauty contest” example, which he suggested as a model of the stock market and used to motivate “animal spirits.”