Variations on the Theme of Scarf's Counter-Example
We study the relation 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.
Volume (Year): 24 (2004)
Issue (Month): 1 (08)
|Contact details of provider:|| Web page: http://www.springerlink.com/link.asp?id=100248|
More information through EDIRC
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.:
- Herbert E. Scarf, 1959. "Some Examples of Global Instability of the Competitive Equilibrium," Cowles Foundation Discussion Papers 79, Cowles Foundation for Research in Economics, Yale University.
- Beckmann, Martin J & Ryder, Harl E, Jr, 1969. "Simultaneous Price and Quantity Adjustment in a Single Market," Econometrica, Econometric Society, vol. 37(3), pages 470-84, July.
- Shapley, Lloyd S & Shubik, Martin, 1977. "An Example of a Trading Economy with Three Competitive Equilibria," Journal of Political Economy, University of Chicago Press, vol. 85(4), pages 873-75, August.
When requesting a correction, please mention this item's handle: RePEc:kap:compec:v:24:y:2004:i:1:p:1-19. 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: (Guenther Eichhorn)or (Christopher F. Baum)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.