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Is there a Walrasian Equilibrium in Exchange Markets with Endowment Effect?

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Author Info
Christian Schwarz ()
Uwe Stroinski
Abstract

We provide an axiomatic framework for exchange markets with a willingnessto- pay/willingness-to-accept discrepancy. First, we obtain a two parameter family of market invariants under price-scaling representing the excess demand. One of the parameters can be identified as endowment. The other is a new feature, called demand-supply gap, that leads to classical general equilibrium if zero. Second, we provide representations of price and demand as unbounded operators on an infinite dimensional Hilbert space. We prove that neither can this space be finite dimensional nor can these operators be bounded.Third, if the demand-supply gap is not zero we obtain that price and demand are not simultaneously sharply measurable and consequently a Walrasian equilibrium does not exist.

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Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen in its series Ruhr Economic Papers with number 0082.

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Length: 21 pages
Date of creation: Jan 2009
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Handle: RePEc:rwi:repape:0082

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Related research
Keywords: General equilibrium theory; endowment effect; non-existence of equilibrium;

Find related papers by JEL classification:
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles

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  1. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December. [Downloadable!] (restricted)
  2. Herbert E. Scarf, 1967. "On the Computation of Equilibrium Prices," Cowles Foundation Discussion Papers 232, Cowles Foundation, Yale University. [Downloadable!]
  3. Carvajal, Andres & Ray, Indrajit & Snyder, Susan, 2004. "Equilibrium behavior in markets and games: testable restrictions and identification," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 1-40, February. [Downloadable!] (restricted)
  4. Kubler, Felix, 2003. "Observable restrictions of general equilibrium models with financial markets," Journal of Economic Theory, Elsevier, vol. 110(1), pages 137-153, May. [Downloadable!] (restricted)
  5. Knetsch, Jack L, 1989. "The Endowment Effect and Evidence of Nonreversible Indifference Curves," American Economic Review, American Economic Association, vol. 79(5), pages 1277-84, December. [Downloadable!] (restricted)
  6. P.A. Chiappori & I. Ekeland & F. Kubler & H.M. Polemarchakis, 2002. "Testable Implications of General Equilibrium Theory: a differentiable approach," Working Papers 2002-10, Brown University, Department of Economics. [Downloadable!]
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  7. Debreu, Gerard, 1970. "Economies with a Finite Set of Equilibria," Econometrica, Econometric Society, vol. 38(3), pages 387-92, May. [Downloadable!] (restricted)
  8. Carvajal, Andres, 2004. "Testable restrictions on the equilibrium manifold under random preferences," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 121-143, February. [Downloadable!] (restricted)
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  9. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  10. Kirman, Alan, 1989. "The Intrinsic Limits of Modern Economic Theory: The Emperor Has No Clothes," Economic Journal, Royal Economic Society, vol. 99(395), pages 126-39, Supplemen. [Downloadable!] (restricted)
  11. Debreu, Gerard, 1974. "Excess demand functions," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 15-21, March. [Downloadable!] (restricted)
  12. Balasko, Yves, 1975. "The Graph of the Walras Correspondence," Econometrica, Econometric Society, vol. 43(5-6), pages 907-12, Sept.-Nov. [Downloadable!] (restricted)
  13. Sonnenschein, Hugo, 1973. "Do Walras' identity and continuity characterize the class of community excess demand functions?," Journal of Economic Theory, Elsevier, vol. 6(4), pages 345-354, August. [Downloadable!] (restricted)
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