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Still dead after all these years: interpreting the failure of general equilibrium theory

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  • Frank Ackerman

Abstract

More than 25 years after the discovery that the equilibrium point of a general equilibrium model is not necessarily either unique or stable, there is still a need for an intuitively comprehensible explanation of the reasons for this discovery. Recent accounts identify two causes of the finding of instability: the inherent difficulties of aggregation, and the individualistic model of consumer behaviour. The mathematical dead end reached by general equilibrium analysis is not due to obscure or esoteric aspects of the model, but rather arises from intentional design features, present in neoclassical theory since its beginnings. Modification of economic theory to overcome these underlying problems will require a new model of consumer choice, nonlinear analyses of social interactions, and recognition of the central role of institutional and social constraints.

Suggested Citation

  • Frank Ackerman, 2001. "Still dead after all these years: interpreting the failure of general equilibrium theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 9(2), pages 119-139.
  • Handle: RePEc:taf:jecmet:v:9:y:2001:i:2:p:119-139
    DOI: 10.1080/13501780210137083
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    References listed on IDEAS

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    1. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    2. Grandmont, Jean-Michel, 1992. "Transformations of the commodity space, behavioral heterogeneity, and the aggregation problem," Journal of Economic Theory, Elsevier, vol. 57(1), pages 1-35.
    3. Arrow, Kenneth J, 1986. "Rationality of Self and Others in an Economic System," The Journal of Business, University of Chicago Press, vol. 59(4), pages 385-399, October.
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