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The aggregate weak axiom in a financial economy through dominant substitution effects

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  • John Quah

    ()
    (Economics Department, University of Oxford)

Abstract

Consider a two period financial economy with incomplete markets and with agents having von Neumann-Morgenstern utility functions. It is well known that when the economys endowments are collinear, the excess demand function will obey the weak axiom when certain mild restrictions are imposed on agents coefficient of relative risk aversion. This result is obtained through the application of a theorem on the law of demand (for individual demand) formulated independently by Milleron (1974) and Mitjuschin and Polterovich (1978). In this paper, we develop their arguments further and apply them to economies without collinear endowments. We identify conditions which guarantee that the economys excess demand function obeys the weak axiom near an equilibrium price.

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Bibliographic Info

Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2004-W18.

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Length: 37 pages
Date of creation: 01 Aug 2004
Date of revision:
Handle: RePEc:nuf:econwp:0418

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Web page: http://www.nuff.ox.ac.uk/economics/

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  1. John H. Nachbar, 2002. "General Equilibrium Comparative Statics," Econometrica, Econometric Society, Econometric Society, vol. 70(5), pages 2065-2074, September.
  2. Nachbar, John H., 2004. "General equilibrium comparative statics: discrete shocks in production economies," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 153-163, February.
  3. Magill, Michael & Shafer, Wayne, 1991. "Incomplete markets," Handbook of Mathematical Economics, Elsevier, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 30, pages 1523-1614 Elsevier.
  4. John K.H. Quah, 2003. "The Law of Demand and Risk Aversion," Econometrica, Econometric Society, Econometric Society, vol. 71(2), pages 713-721, March.
  5. Michael Jerison, 1998. "Dispersed Excess Demands, the Weak Axiom and Uniqueness of Equilibrium," Discussion Papers, University at Albany, SUNY, Department of Economics 98-03, University at Albany, SUNY, Department of Economics.
  6. Polterovich, Victor & Mityushin, Leonid, 1978. "Criteria for Monotonicity of Demand Functions," MPRA Paper 20097, University Library of Munich, Germany.
  7. repec:rus:hseeco:94360 is not listed on IDEAS
  8. Hildenbrand, Werner, 1983. "On the "Law of Demand."," Econometrica, Econometric Society, Econometric Society, vol. 51(4), pages 997-1019, July.
  9. Bettzuge, Marc Oliver, 1998. "An extension of a theorem by Mitjushin and Polterovich to incomplete markets," Journal of Mathematical Economics, Elsevier, vol. 30(3), pages 285-300, October.
  10. Quah, John K. -H., 2003. "Market demand and comparative statics when goods are normal," Journal of Mathematical Economics, Elsevier, vol. 39(3-4), pages 317-333, June.
  11. Hens, Thorsten & Loeffler, Andras, 1995. "Gross substitution in financial markets," Economics Letters, Elsevier, Elsevier, vol. 49(1), pages 39-43, July.
  12. Quah, J-K-H, 1996. "The Monotonicity of Individual and Market Demand," Economics Papers, Economics Group, Nuffield College, University of Oxford 127, Economics Group, Nuffield College, University of Oxford.
  13. Mantel, Rolf R., 1976. "Homothetic preferences and community excess demand functions," Journal of Economic Theory, Elsevier, Elsevier, vol. 12(2), pages 197-201, April.
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