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A pitchfork bifurcation in the tatonnement process

Listed author(s):
  • Venkatesh Bala

    (Department of Economics, McGill University, 855 Sherbrooke St. W., Montreal, CANADA H3A 2T7)

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    This note extends the example of Gale (1963) by considering the continuous time tatonnement process for a class of two agent, two commodity exchange economies, parametrized by a number µ∈(0,1). We demonstrate that as the parameter passes a threshold value µ* the unique, globally stable competitive equilibrium loses local stability while two new locally stable equilibria appear. Intuitively, as µ increases the income effect become increasingly more important relative to substitution effect, and eventually overwhelms the latter. As the parameter µ approaches 1, the economy tends to the example considered by Gale, as does the limiting behavior of the tatonnement.

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    Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

    Volume (Year): 10 (1997)
    Issue (Month): 3 ()
    Pages: 521-530

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    Handle: RePEc:spr:joecth:v:10:y:1997:i:3:p:521-530
    Note: Received: February 28, 1996; revised version August 5, 1996
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