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Testable Restrictions on the Equilibrium Manifold under Random Preferences

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  • Andrés Carvajal

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Abstract

General equilibrium theory was criticized for its apparent irrefutability, as seemingly implied by the Sonnenschein-Mantel-Debreu theorem. This view was challenged by Brown and Matzkin (1996), who showed the existence of testable restrictions on the equilibrium manifold. Brown and Matzkin, however, maintain the assumption that individual preferences are invariant (against psychological evidence). I consider the Brown- Matzkin problem under random preferences: for each profile of endowments one observes a distribution of prices; does there exist a probability distribution of preferences that explains the observed distributions of prices via Walrasian equilibria? I argue that even under random utilities general equilibrium theory is falsifiable.

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Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 233.

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Handle: RePEc:bdr:borrec:233

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  1. Allen, B., 1985. "Continuous random selections from the equilibrium correspondence," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1985020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by:
  1. Andrés Carvajal, . "Testable Restrictions of General Equilibrium Theory in Exchange Economies with Externalities," Borradores de Economia, Banco de la Republica de Colombia 231, Banco de la Republica de Colombia.
  2. Carvajal, Andres & Quah, John K.-H., 2009. "A Nonparametric Analysis of the Cournot Model," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 922, University of Warwick, Department of Economics.
  3. Andrés Carvajal, 2010. "The testable implications of competitive equilibrium in economies with externalities," Economic Theory, Springer, Springer, vol. 45(1), pages 349-378, October.
  4. Laurens Cherchye & Thomas Demuynck & Bram De Rock, 2011. "Testable implications of general equilibrium models: An integer programming approach," ULB Institutional Repository, ULB -- Universite Libre de Bruxelles 2013/131708, ULB -- Universite Libre de Bruxelles.
  5. Christian Schwarz & Uwe Stroinski, 2009. "Is there a Walrasian Equilibrium in Exchange Markets with Endowment Effect?," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0082, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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