Increasing Returns in Infinite Horizon Economies
This paper shows that, in a general equilibrium model with an infinite horizon in which production may exhibit increasing returns to scale or nonconvexities, marginal cost pricing equilibria exist and are essential, that is, stable with respect to small perturbations of the economy. As in many important models of market imperfections, marginal cost pricing equilibria need not be Pareto optimal in the presence of nonconvexities, so the systematic approaches to equilibrium analysis in infinite-dimensional commodity spaces, which rely crucially on the first welfare theorem, cannot be used. Instead, this paper introduces Leray-Schauder degree theory, the extension of degree theory to Banach and locally convex spaces, as the natural methodology for showing that equilibria exist and for analyzing qualitative features of equilibria such as local uniqueness or essentiality. Copyright 1997 by The Review of Economic Studies Limited.
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|Date of creation:||01 Oct 1994|
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