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Increasing Returns in Infinite-Horizon Economics

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  • Shannon, Chris

Abstract

This paper shows that, in a general equilibrium model with an infinite horizon in which production may exhibit increasing returns to scale or nonconvexities, marginal cost pricing equilibria exist and are essential, that is, stable with respect to small perturbations of the economy. As in many important models of market imperfections, marginal cost pricing equilibria need not be Pareto optimal in the presence of nonconvexities, so the systematic approaches to equilibrium analysis in infinite-dimensional commodity spaces, which rely crucially on the first welfare theorem, cannot be used. Instead, this paper introduces Leray-Schauder degree theory, the extension of degree theory to Banach and locally convex spaces, as the natural methodology for showing that equilibria exist and for analyzing qualitative features of equilibria such as local uniqueness or essentiality. Copyright 1997 by The Review of Economic Studies Limited.

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Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 64 (1997)
Issue (Month): 1 (January)
Pages: 73-96

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Handle: RePEc:bla:restud:v:64:y:1997:i:1:p:73-96

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Cited by:
  1. M. Ali Khan, 2007. "Perfect Competition," PIDE-Working Papers 2007:15, Pakistan Institute of Development Economics.
  2. Bonnisseau, J.M., 2000. "The Marginal Pricing Rule in Economies with Infinitely Many Commodities," Papiers d'Economie Mathématique et Applications 2000.47, Université Panthéon-Sorbonne (Paris 1).
  3. Khan, M. Ali Khan, 2007. "Perfect Competition," MPRA Paper 2202, University Library of Munich, Germany.
  4. van der Laan, Gerard & Withagen, Cees, 2003. "Quasi-equilibrium in economies with infinite dimensional commodity spaces: a truncation approach," Journal of Economic Dynamics and Control, Elsevier, vol. 27(3), pages 423-444, January.

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