IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-06c60004.html
   My bibliography  Save this article

The Lagrange multiplier is not the shadow value of the limiting resource in the presence of strategically interacting agents

Author

Listed:
  • Michael Caputo

    () (University of Central Florida)

Abstract

In the case of a single net-benefit maximizing agent facing a resource constraint, the economic interpretation of the Lagrange multiplier is that of the shadow value of the constraining resource. The formal justification for this economic interpretation is by way of the classical envelope theorem. Once an environment of strategically interacting agents is contemplated, however, the Lagrange multiplier no longer represents the shadow value of the resource to an agent. A concise proof of this claim and a revised economic interpretation of the Lagrange multiplier are given in this note.

Suggested Citation

  • Michael Caputo, 2007. "The Lagrange multiplier is not the shadow value of the limiting resource in the presence of strategically interacting agents," Economics Bulletin, AccessEcon, vol. 3(20), pages 1-8.
  • Handle: RePEc:ebl:ecbull:eb-06c60004
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/pubs/EB/2007/Volume3/EB-06C60004A.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Silberberg, Eugene, 1974. "A revision of comparative statics methodology in economics, or, how to do comparative statics on the back of an envelope," Journal of Economic Theory, Elsevier, vol. 7(2), pages 159-172, February.
    2. Besanko, David, 1987. "Performance versus design standards in the regulation of pollution," Journal of Public Economics, Elsevier, vol. 34(1), pages 19-44, October.
    3. Caputo, Michael R., 1996. "The Envelope Theorem and Comparative Statics of Nash Equilibria," Games and Economic Behavior, Elsevier, vol. 13(2), pages 201-224, April.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-06c60004. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.