Table Of ContentEQUILIBRIUM 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
