The Law of Indifference, Equilibrium, and Equilibration in Jevons, Walras, Edgeworth, and Negishi
In developing their equilibrium theories over the decade 1871-1881, Jevons (1871), Walras (1874-7), and Edgeworth (1881) made use of some version of a Law, called Law of Indifference by Jevons and Edgeworth and often referred to as the Law of One Price in connection with Walrasian economics. In Jevons’s theory of exchange, the Law of Indifference is a quasi-tautology playing a fundamental role in both the derivation of the equilibrium conditions and the characterisation of Jevons’s equilibrium concept. In Walras’s pure-exchange model, the Law of One Price, assumed as a postulate and lacking any proper theoretical underpinnings, is no longer confined to equilibrium analysis, as in Jevons, but is so conceived as to embrace Walras’s equilibration analysis, namely, the celebrated tâtonnement construct, too. Finally, in Edgeworth’s theory of exchange, the Law of Indifference, once again restricted to equilibrium analysis only, is made to emerge as a limiting result, produced by the joint operation of Edgeworth’s replication and recontracting mechanisms and associated with the unbounded increase in the size of the economy. One century after Edgeworth’s achievements, Negishi (1982) resumed Jevons’s and Edgeworth’s interpretation of the Law of Indifference as an equilibrium property; yet, parting company with Edgeworth, he tried to prove that the arbitrage mechanism underlying the Law is at work and fully effective even in very small finite economies. The aim of this paper is twofold: first, to reconstruct the various uses of the Law of Indifference and its variants in the diverse theoretical traditions originated by Jevons, Walras, and Edgeworth; secondly, to critically discuss Negishi’s attempt to revive Jevons’s Law of Indifference as a fully micro-founded and extremely powerful equilibrium property of finite competitive economies where arbitraging activities are allowed for.
|Date of creation:||13 May 2011|
|Contact details of provider:|| Postal: Via Conservatorio 7 - 20122 Milano|
Phone: +39 02 503 16486
Fax: +39 02 503 16475
Web page: http://services.bepress.com/unimi
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.:
- Kunimoto, Takashi & Serrano, Roberto, 2004.
"Bargaining and competition revisited,"
Journal of Economic Theory,
Elsevier, vol. 115(1), pages 78-88, March.
- Takashi Kunimoto & Roberto Serrano, 2002. "Bargaining and Competition Revisited," Working Papers 2002-14, Brown University, Department of Economics.
- Nicholas Kaldor, 1934. "A Classificatory Note on the Determinateness of Equilibrium," Review of Economic Studies, Oxford University Press, vol. 1(2), pages 122-136.
- Franco Donzelli, 2007. "Equilibrium and Tâtonnement in Walras's Eléments," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 15(3), pages 85-138.
- Koutsougeras, Leonidas C., 2003. "Non-Walrasian equilibria and the law of one price," Journal of Economic Theory, Elsevier, vol. 108(1), pages 169-175, January.
- Allan M. Feldman, 1973. "Bilateral Trading Processes, Pairwise Optimally, and Pareto Optimality," Review of Economic Studies, Oxford University Press, vol. 40(4), pages 463-473. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:bep:unimip:unimi-1110. 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: (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.