Equilibrium and Disequilibrium in Economic Theory: Proceedings of a Conference Organized by the Institute for Advanced Studies, Vienna, Austria July 3–5, 1974 PDF
Preview Equilibrium and Disequilibrium in Economic Theory: Proceedings of a Conference Organized by the Institute for Advanced Studies, Vienna, Austria July 3–5, 1974
EQUILIBRIUM AND DISEQUILIBRIUM IN ECONOMIC THEORY THEORY AND DECISION LIBRARY AN INTERNATIONAL SERIES IN THE PHILOSOPHY AND METHODOLOGY OF THE SOCIAL AND BEHAVIORAL SCIENCES Editors: GERALD EBERLEIN, University of Saarland WERNER LEINFELLNER, University of Nebraska Editorial Advisory Board: K. BORCH, Norwegian School of Economics and Business Administration M. BUNGE, McGill University J. S. COLEMAN, University of Chicago W. KROEBER-RIEL, University of Saarland F. SCHICK, Rutgers University A. RAPOPORT, University of Toronto A. SEN, University of London W. STEGMULLER, University of Munich K. SZANIA WSKI, University of Warsaw L. TONDL, Prague VOLUME 13 EQUILIBRIUM AND DISEQUILIBRIUM IN ECONOMIC THEORY PROCEEDINGS OF A CONFERENCE ORGANIZED BY THE INSTITUTE FOR ADVANCED STUDIES, VIENNA, AUSTRIA JULY 3-5, 1974 Edited by GERHARD SCHWODIAUER Institute for Advanced Studies, Vienna, Austria D. REIDEL PUBLISHING COMPANY DORDRECHT-HOLLAND I BOSTON -U. S.A. Library of Congress Cataloging in Publication Data Main entry under title: Equilibrium and disequilibrium in economic theory. (Theory and decision library; v. 13) Bibliography: p. Includes index. 1. Economics-Congresses. 2. Equilibrium (Economics)-Congresses. 3. Statics and dynamics (Social sciences)-Congresses. I. SchwOdiauer, Gerhard. II. Institut fiir hahere Studien und wissenschaftliche Forschung, Vienna. HB21.e69 330'.01'8 77-25391 ISBN-13: 978-94-010-1157-0 e-ISBN-13: 978-94-010-1155-6 DOl: 10.1007/978-94-010-1155-6 Published by D. Reidel Publishing Company, P.O. Box 17, Dordrecht, Holland Sold and distributed in the U.S.A., Canada and Mexico by D. Reidel Publishing Company, Inc. Lincoln Building, 160 Old Derby Street, Hingham, Mass. 02043, U. S. A. All Rights Reserved Copyright © 1978 by D. Reidel Publishing Company, Dordrecht, Holland Softcover reprint of the hardcover 1st edition 1978 No part of the material protected by this copyright notice may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any informational storage and retrieval system, without written permission from the copyright owner TABLE OF CONTENTS PREFACE IX INTRODUCTION XI LIST OF PARTICIPANTS XLIX PART 1 / EQUILIBRIUM K. VIND / Equilibrium with Respect to a Simple Market 3 D. GALE and A. MAS-COLELL / On the Role of Complete, Transitive Preferences in Equilibrium Theory 7 C. WEDDEPOHL / Equilibrium in a Market with Incomplete Preferences where the Number of Consumers May Be Finite 15 W.P. HELLER / Continuity in General Nonconvex Economies (with Applications to the Convex Case) 27 H. KEIDING / Are Core Allocations Obtainable as Exchange Equilibria? 39 P. VAN MOESEKE / Equivalence of Competitive and Relative-Core Allocations on a Measure Space of Economic Agents 47 V. BOHM / Non-Stable Cores of Exchange Economies 53 M. J. BECKMANN / Does Perfect Competition in Spatial Markets Maximize Welfare? 67 W.E. DIEWERT / Walras' Theory of Capital Formation and the Existence of a Temporary Equilibrium 73 PART 2 / CRITIQUE OF EQUILIBRIUM THEORY M. ALLAIS / Theories of General Economic Equilibrium and Maximum Efficiency 129 H. ABELE / Towards a Neo-Austrian Theory of Exchange 203 M. SHUBIK / Competitive and Controlled Price Economies: the Arrow-Debreu Model Revisited 213 VI TABLE OF CONTENTS PART 3 / EXTENSIONS OF EQUILIBRIUM THEORY IMPERFECT COMPETITION, UNCERTAINTY, AND MONEY T. HANSEN and A. S. MANNE / Equilibrium and Linear Comple mentarity ~ an Economy with Institutional Constraints on Prices 227 R. R. CORNWALL / Marketing Costs and Imperfect Competition in General Equilibrium 239 A. R. G. HEESTERMAN / Oligopoly and Its Macroeconomic Implications 255 G. TINTNER / Risk and Uncertainty. Their Importance for the Homogeneity of Demand and Supply Functions and the Dicho- tomy between Real and Monetary Economies 277 G. HEAL / Notes on the Economic Consequences of Uncertain Product Quality 295 M. KING / Corporate Policy, Uncertainty, and the Stock Market 315 A. ULPH and D. ULPH / Efficiency, Inessentiality and the 'Debreu Property' of Prices 337 PART 4/ PROBLEMS IN DYNAMICS S. SMALE / An Approach to the Analysis of Dynamic Processes in Economic Systems 363 K. NAGATANI and P.A. NEHER / On Adjustment Dynamics~An Exercise in Traverse 369 W.A. BROCK and J.A. SCHEINKMAN / On the Long-Run Behaviour of a Competitive Firm 397 N. GEORGESCu-RoEGEN / Dynamic Models and Economic Growth 4 t 3 PART 5 / DISEQUILIBRIUM AND MACROECONOMIC THEORY P. W. HOWITT / The Qualitative Effects of False Trading 453 P. G. KORLIRAS / Non-Tiitonnement and Disequilibrium Adjustments in Macroeconomic Models 463 T. NEGISHI / Existence of an Under-Employment Equilibrium 497 J.-P. BENASSY / A Neokeynesian Model of Price and Quantity Determination in Disequilibrium 51 I TA BLE OF CONTENTS VII D. M. JAFFEE / The Specification of Disequilibrium in Flow of Funds Models 545 R.J. BARRO and H. I. GROSSMAN / Consumption, Income, and Liquidity 565 D.A. STARRETT / A Model of Dynamic Keynesian Equilibrium 593 T. RADER / Many-Good Multiplier Analysis under Traditional, Classical and Neo-Keynesian Conditions 611 C. AZARIADIS / Stochastic Disequilibrium in a Labor Contracts Economy 651 G. D. DEMOPOULOS / Expectations, the Real Rate of Interest, and Labor Market Behavior in a Macromodel 671 R. BRITTO / Optimal International Adjustment for a Country in a State of Fundamental Dynamic Disequilibrium 691 S. W. ARNDT / International Trade and Payments when Markets Fail to Clear 705 INDEX OF NAMES 723 INDEX OF SUBJECTS 728 PREFACE This volume is the result of a conference held at the Institute for Advanced Studies, Vienna. There is still a gap reflected both in fundamental meth odological differences and in the style of analysis between the Walrasian (and Edgeworthian) tradition of general equilibrium theory and the theo retical and policy problems raised in the framework of Keynesian and post-Keynesian macroeconomics. The conference succeeded in bringing together economic theorists working in fields ranging from abstract prob lems of mathematical equilibrium analysis to applied macroeconomic theory, and it is hoped that the present volume will contribute to bridging the above-mentioned hiatus. As organizer of the meeting and editor of its proceedings I want to thank the Institute for Advanced Studies for providing facilities and funds. I am also sincerely grateful to all my colleagues from the Institute for their generous help, in particular to Mrs Monika Herkner without whose assistance and organizational talent the conference would certainly not have been the success it in fact - in the opinion of all participants - turned out to have been. Furthermore, I wish to express my gratitude towards all participants in the meeting and contributors to the volume whose patient support of the whole enterprise proved indispensable. To Mrs Elfriede Auracher I am deeply indebted for her skillful and effective general management of the editorial work and her invaluable assistance in compiling the indexes. GERHARD SCHWODIAUER INTRODUCTION Economic Equilibrium and Disequilibrium from a Dynamic Point of View * The theory of general economic equilibrium, or, rather, the collection of general equilibrium models (for there certainly does not yet exist such a 'theory' in the stronger sense established in the physical sciences), can nowadays rightly be considered the theoretical basis and core of economic science. Characteristic for any type of modern general equilibrium theory - and what distinguishes its research program from certain variants of 'macro-theorizing' - is its 'methodological individualism': General equilibrium theory explicitly recognizes that at the bottom of every collec tive, social phenomenon are the actions of individual human decision makers, and argues that, for this reason, the modeling of individual deci sion making plays an indispensible role in the analysis and explanation of economic macro-phenomena. This means neither that the program of general equilibrium theory is opposed to empirical macroeconomics - on the contrary, for purposes of making theoretical concepts operational, testing theoretical hypotheses, and practical policy applications, cluster ing and aggregation, and a certain loss of structural information, are un avoidable (the general equilibrium theorist would only argue that macro economic concepts and relations are of a derived nature and are to be deduced, by means of explicit aggregation rules, from their microeconom ic counterparts) - nor that the analysis of individual behavior is thought sufficient for the explanation of the social consequences resulting from individual actions. As Hayek [24, p. 39] has pointed out, it is a mistake, to which careless expressions by social scientists often give countenance, to believe that their aim is to explain conscious action. This, if it can be done at all, is * Contributions contained in this volume are referred to in the introduction by using small capital letters for the respective name(s) of author(s) while all other references are listed alphabetically and numbered correspondingly, their respective numbers being put in brackets in the text. XII INTRODUCTION a different task, the task of psychology. For the social sciences the types of conscious action are data .... The problems which they try to answer arise only in so far as regularities are observed which are not the result of anybody's design. If social pheno mena showed no order except in so far as they were consciously designed, there would indeed be no room for theoretical sciences of society and there would be, as is often argued, only problems of psychology. It is only in so far as some sort of order arises as a result of individual action but without being designed by any individual that a problem is raised which demands a theoretical explanation. Indeed, the transformation of individual actions by institutional arrange ments like the market into collective outcomes unforeseen and undesired by the individual decision makers is one of the perennial themes of economic theory, whether this phenomenon was hailed as a benevolent 'invisible hand' by Adam Smith or regarded as a symptom of alienation by Karl Marx. The observation that society and economy are the result of human action but not of human design, and the wonder at the apparent fact that decentralized economies which comprise vast numbers of auton omous decision-making units pursuing their own interest do as a rule not engender total chaos but are, on the contrary, quite capable of pro ducing a coherent pattern of economic activities serving the well-being of its members much better than most of the historically known centrally planned economies do (though there may be characteristic deficiencies as, e.g., more or less regular fluctuations in employment), have been the prime intellectual motivations for general equilibrium analysis. It has to be stressed once more that the theory of general economic equilibrium is at least as much interested in understanding and modeling the institutional socio-economic arrangements controlling the interaction of the economic agents as in analyzing their individual goals and choice possibilities (sec also [18]). Using game-theoretical terminology [49; SHUBIK]: In positive economics, the theorist's task is to specify a game (in extensive form given by the set of players, i.e. economic agents, their so-called payoff functions describing their valuations of the outcomes of the game, i. e. states of the economy, and a full description of the information conditions and all se quences of moves leading to these outcomes) whose solutions (e.g., non cooperative equilibrium points) correspond most closely to the regularities observed and to be explained. In normative, or welfare, economics, the task is to compare various conceivable rules of games, keeping, e.g., play ers, payoff functions, physical and technological conditions constant, but varying the extensive form with respect to institutional conditions, and
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