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Endowment Effects in Competitive General Equilibrium: A Primer for Paretian Policy Analysts

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  • Martin O’Connor
  • Eliot Muir

Abstract

General competitive equilibrium theory establishes interdependency between input (wealth) distribution amongst consumers-as-owners, and the equilibrium output mix and relative prices for inputs and outputs in a market economy. We give a portrayal of these interdependencies—considered as "endowment effects" - suitable for undergraduate teaching. With a Cobb-Douglas 2-input, 2-good, 2-consumer model having input-specialization and non-alike consumer preferences, equilibrium prices and output levels are monotonic one-to-one functions of income shares, which are in turn monotonic functions of the endowments of consumers-as-owners. An "Endowment Box" provides the framework for portraying these "endowment effects" graphically.

Suggested Citation

  • Martin O’Connor & Eliot Muir, 1996. "Endowment Effects in Competitive General Equilibrium: A Primer for Paretian Policy Analysts," Journal of Income Distribution, Ad libros publications inc., vol. 5(2), pages 1-1, December.
    • Handle: RePEc:jid:journl:y:1996:v:05:i:2:p:1-1
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    Cited by:

    1. Stern, David I., 1997. "Limits to substitution and irreversibility in production and consumption: A neoclassical interpretation of ecological economics," Ecological Economics, Elsevier, vol. 21(3), pages 197-215, June.

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