Survival, Uncertainty, and Equilibrium Theory: An Exposition

Summary The last twenty years have witnessed a significant growth of the literature on the “survival problem”, primarily in the context of the causes and remedies of famines. Once a subject essentially of empirical development economics, economic survival became an issue of analytical economics and, most recently, of general equilibrium theory. We review several issues of the survival problem in the general equilibrium framework. First, we consider a Walrasian economy with intrinsic uncertainty affecting the endowments and compute the asymptotic probability of survival under different assumptions of dependence among the agents. Next, we show how the presence of extrinsic uncertainty in a dynamic economy may lead to a ruin in a sunspot equilibrium. Finally, we analyze the link between survival and specialization in production.