On the Stability of Hellers Coordination Failure Model

Abstract

This paper reconsiders Heller's multisector Cournot-Nash model(Heller 1986) hat is known as one of the representative models of coordination failure. In Heller's model, there are muliple Pareto-anked equilibria if the price elasticity of demand is highly inelastic near the subsistence level. This paper analyzes the stability of those equilibria and show that the inferior equilibrium is unstable while the superior equilibrium is stable. Therefore, the coordination failure does not emerge in Heller's model.