In this paper we study the relationship between the stability of a competitive equilibrium (CE) and the price adjustment mechanism used to attain that equilibrium point. Using two specific examples, a three- commodity exchange economy with a unique competitive equilibrium (Scarf's global instability example) and a two-commodity, two-trader type exchange economy with multiple competitive equilibria, we show that the stability of a CE depends critically upon the dynamics of the price adjustment mechanism. A particular CE may be unstable under one price adjustment mechanism but stable under another. The joint dynamics of the chosen price adjustment mechanism and the given economy determines the overall stability of its competitive equilibrium. Our results suggest that context-rich studies of economic systems which focus on a specific price adjustment mechanism may provide insights into the dynamics and stability of economic systems that are often not revealed through a context-independent analysis.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by Santa Fe Institute in its series Working Papers with number
01-12-074.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)