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Existence and efficiency of equilibrium in economies with increasing returns to scale: An exposition

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Listed author(s):
  • Antonio Villar Notario

    (Instituto Valenciano de Investigaciones Económicas)

Abstract

The purpose of this paper is to offer an exposition of the results on the existence and optimality of equilibria when production sets are not assumed to be convex, in a general equilibrium framework. We aim at providing a formal and systematic account of the main results available, rather than survey the literature. Besides presenting an abstract model, where firms' behavior is described by general pricing rules, we analyze the family of Loss-free Pricing Rules (focusing on Profit Maximization, both constrained and unconstrained, and Average Cost Pricing), and the Marginal Pricing Rule and other regulation policies. Then, we discuss the efficiency problem, referring to both the first and second welfare theorems.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-1994-07.pdf
File Function: Fisrt version / Primera version, 1994
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 1994-07.

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Length: 75 pages
Date of creation: May 1994
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:1994-07
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Keywords: Increasing returns; equilibrium; optimality;

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  1. Cornet, B., 1984. "Existence of equilibria in economies with increasing returns," CORE Discussion Papers 1984007, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  3. Brown, Donald J. & Heal, Geoffrey M. & Ali Khan, M. & Vohra, Rajiv, 1986. "On a general existence theorem for marginal cost pricing equilibria," Journal of Economic Theory, Elsevier, vol. 38(2), pages 371-379, April.
  4. Herrero, Carmen & Villar, Antonio, 1988. "General Equilibrium in a Non-linear Leontief Framework," The Manchester School of Economic & Social Studies, University of Manchester, vol. 56(2), pages 159-166, June.
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  7. Bonnisseau, Jean-Marc, 1988. "On two existence results of equilibria in economies with increasing returns," Journal of Mathematical Economics, Elsevier, vol. 17(2-3), pages 193-207, April.
  8. Antonio Villar Notario, 1994. "Existence and optimality of social equilibrium with many convex and nonconvex firms," Working Papers. Serie AD 1994-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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  11. Brown, Donald J., 1991. "Equilibrium analysis with non-convex technologies," Handbook of Mathematical Economics,in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 36, pages 1963-1995 Elsevier.
  12. Donald J. Brown & Geoffrey Heal, 1979. "Equity, Efficiency and Increasing Returns," Review of Economic Studies, Oxford University Press, vol. 46(4), pages 571-585.
  13. Hart, Sergiu & Mas-Colell, Andreu, 1989. "Potential, Value, and Consistency," Econometrica, Econometric Society, vol. 57(3), pages 589-614, May.
  14. Bonnisseau, Jean-Marc & Cornet, Bernard, 1988. "Existence of equilibria when firms follow bounded losses pricing rules," Journal of Mathematical Economics, Elsevier, vol. 17(2-3), pages 119-147, April.
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  18. Egbert Dierker, 1986. "When does marginal cost pricing lead to Pareto efficiency?," Journal of Economics, Springer, vol. 46(1), pages 41-66, December.
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  22. MacKinnon, James G., 1979. "Computing equilibria with increasing returns," European Economic Review, Elsevier, vol. 12(1), pages 1-16, February.
  23. Samet, Dov & Tauman, Yair, 1982. "The Determination of Marginal Cost Prices under a Set of Axioms," Econometrica, Econometric Society, vol. 50(4), pages 895-909, July.
  24. Benassy, Jean-Pascal, 1991. "Monopolistic competition," Handbook of Mathematical Economics,in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 37, pages 1997-2045 Elsevier.
  25. Villar, Antonio, 1994. "Equilibrium with Nonconvex Technologies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(4), pages 629-638, May.
  26. Vohra, Rajiv, 1988. "Optimal regulation under fixed rules for income distribution," Journal of Economic Theory, Elsevier, vol. 45(1), pages 65-84, June.
  27. Dierker, Egbert & Neuefeind, Wilhelm, 1988. "Quantity guided price setting," Journal of Mathematical Economics, Elsevier, vol. 17(2-3), pages 249-259, April.
  28. Calsamiglia, Xavier, 1977. "Decentralized resource allocation and increasing returns," Journal of Economic Theory, Elsevier, vol. 14(2), pages 263-283, April.
  29. Ichiishi, Tatsuro & Quinzii, Martine, 1983. "Decentralization for the Core of a Production Economy with Increasing Returns," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(2), pages 397-412, June.
  30. Kamiya, Kazuya, 1988. "Existence and uniqueness of equilibria with increasing returns," Journal of Mathematical Economics, Elsevier, vol. 17(2-3), pages 149-178, April.
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  32. Silvestre, Joaquim, 1978. "Increasing Returns in General Non-Competitive Analysis," Econometrica, Econometric Society, vol. 46(2), pages 397-402, March.
  33. Edlin, Aaron S & Epelbaum, Mario, 1993. "Two-Part Marginal Cost Pricing Equilibria with n Firms: Sufficient Conditions for Existence and Optimality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 903-922, November.
  34. Sharkey, William W., 1989. "Game theoretic modeling of increasing returns to scale," Games and Economic Behavior, Elsevier, vol. 1(4), pages 370-431, December.
  35. Dierker, Egbert & Guesnerie, Roger & Neuefeind, Wilhelm, 1985. "General Equilibrium When Some Firms Follow Special Pricing Rules," Econometrica, Econometric Society, vol. 53(6), pages 1369-1393, November.
  36. Bonnisseau, Jean-Marc & Cornet, Bernard, 1990. "Existence of Marginal Cost Pricing Equilibria: The Nonsmooth Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 685-708, August.
  37. Greenberg, Joseph & Shitovitz, Benyamin, 1984. "Aumann-Shapley prices as a scarf social equilibrium," Journal of Economic Theory, Elsevier, vol. 34(2), pages 380-382, December.
  38. Brown, Donald J. & Heller, Walter P. & Starr, Ross M., 1992. "Two-part marginal cost pricing equilibria: Existence and efficiency," Journal of Economic Theory, Elsevier, vol. 57(1), pages 52-72.
  39. Donald J. Brown & Geoffrey M. Heal, 1983. "The Optimality of Regulated Pricing: A General Equilibrium Analysis," Cowles Foundation Discussion Papers 684, Cowles Foundation for Research in Economics, Yale University.
  40. Guesnerie, Roger, 1975. "Pareto Optimality in Non-Convex Economies," Econometrica, Econometric Society, vol. 43(1), pages 1-29, January.
  41. Cornet, B., 1986. "The second welfare theorem in nonconvex economies," CORE Discussion Papers 1986030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  42. Jouini, Elyes, 1989. "A remark on Clarke's normal cone and the marginal cost pricing rule," Journal of Mathematical Economics, Elsevier, vol. 18(1), pages 95-101, February.
  43. Quinzii, Martine, 1982. "An existence theorem for the core of a productive economy with increasing returns," Journal of Economic Theory, Elsevier, vol. 28(1), pages 32-50, October.
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Cited by:

  1. Hammond, Peter J & Villar, Antonio, 1998. " Efficiency with Non-convexities: Extending the "Scandinavian Consensus" Approaches," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 11-32, March.

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