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Approximating Walrasian Equilibria

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  • Aad Ruiter

    (University of Amsterdam)

Abstract

This paper proposes a price adjustment process that converges globally for a set of pure exchange economies, in which each agent has a Constant Elasticity of Substitution utility function. In this process, the auctioneer approximates demand schedules by assuming that each trader has a Cobb–Douglas utility function. The process generates prices that cannot be represented by linear combinations of previous prices, and hence precludes cycles. In the so-called unstable Scarf economies, prices spiral towards the Walrasian equilibrium in the same direction as found by Scarf. Simulation in large scale Scarf economies suggests that the speed of convergence may be polynomial in the size of the economy.

Suggested Citation

  • Aad Ruiter, 2020. "Approximating Walrasian Equilibria," Computational Economics, Springer;Society for Computational Economics, vol. 55(2), pages 577-596, February.
    • Handle: RePEc:kap:compec:v:55:y:2020:i:2:d:10.1007_s10614-019-09904-z
    DOI: 10.1007/s10614-019-09904-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Walrasian equilibrium; Scarf examples; CES preferences; Computation; Complexity;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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