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Janos Kornai and General Equilibrium Theory

Listed author(s):
  • Mehrdad Vahabi

    ()

    (Centre d'Economie de l'Université de Paris Nord (CEPN))

This paper explores the evolution of Kornai’s thought on General Equilibrium Theory (GET) and his position on mainstream economics. Three moments in this evolution will be highlighted starting by rejecting GET and advocating disequilibrium in Anti-Equilibrium (1971). While Kornai does not treat the ‘equilibrium paradigm’ as irrelevant, he suggests an alternative paradigm, namely economic systems theory that he further develops in the eighties as ‘system paradigm’. Economics of Shortage (1980) marks a second phase in which Kornai distinguishes Walrasian equilibrium from normal state or Marshallian equilibrium. In this phase, he supports Marshallian equilibrium rather than disequilibrium. Finally By Force of Thought (2006) is a critical self-appraisal in which Kornai considers Anti-Equilibrium as a ‘failure’ and acknowledges GET as a benchmark of an ideal competitive market. He now advocates a Walrasian equilibrium as an abstract reference model but refuses to consider this model as a description of reality. In this sense, he refuses the New Classical economics. Paradoxically however, his original heterodox concept of ‘soft budget constraint’, irreconcilable with standard microeconomics, has been integrated in new microeconomics as an optimal intertemporal strategy of a maximizing agent in the absence of credible commitments. It will be argued that Kornai’s so-called failure is rather related to his half-in, half-out mainstream position, while his institutionalist system paradigm is still a heterodox research project of the future.

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Paper provided by Centre d'Economie de l'Université de Paris Nord in its series CEPN Working Papers with number 2017-16.

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Date of creation: Aug 2017
Handle: RePEc:upn:wpaper:2017-16
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  1. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
  2. Mehrdad Vahabi, 1998. "The Relevance of the Marshallian Concept of Normality in Interior and in Inertial Dynamics as Revisited by G. SHACKLE and J. KORNAI," Post-Print hal-00629181, HAL.
  3. Michel De Vroey, 2009. "A Marshall-Walras Divide? A Critical Review of the Prevailing Viewpoints," History of Political Economy, Duke University Press, vol. 41(4), pages 709-736, Winter.
  4. De Vroey,Michel, 2016. "A History of Macroeconomics from Keynes to Lucas and Beyond," Cambridge Books, Cambridge University Press, number 9780521898430, December.
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  7. János Kornai, 2016. "The System Paradigm Revisited. Clarification and Additions in the Light of Experiences in the Post-Socialist Region," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 66(4), pages 547-596, December.
  8. Kornai, Janos, 1983. "The Health of Nations: Reflections on the Analogy between the Medical Science and Economics," Kyklos, Wiley Blackwell, vol. 36(2), pages 191-212.
  9. Arrow, Kenneth J, 1974. "General Economic Equilibrium: Purpose, Analytic Techniques, Collective Choice," American Economic Review, American Economic Association, vol. 64(3), pages 253-272, June.
  10. Vahabi, Mehrdad, 1998. "The Relevance of the Marshallian Concept of Normality in Interior and Inertial Dynamics as Revisited by Shackle and Kornai," Cambridge Journal of Economics, Oxford University Press, vol. 22(5), pages 547-572, September.
  11. J. Kornai & E. Maskin & G. Roland., 2004. "Understanding the Soft Budget Constraint," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 12.
  12. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766.
  13. Mehrdad Vahabi, 2014. "Soft Budget Constraint Reconsidered," Bulletin of Economic Research, Wiley Blackwell, vol. 66(1), pages 1-19, January.
  14. Manuel L. Costa, 1998. "General Equilibrium Analysis and the Theory of Markets," Books, Edward Elgar Publishing, number 1604.
  15. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September.
  16. Mehrdad VAHABI, 2001. "The Soft Budget Constraint : A Theoretical Clarification," Discussion Papers (REL - Recherches Economiques de Louvain) 2001024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  17. Mehrdad Vahabi, 2009. "An Introduction to Destructive Coordination," Post-Print hal-00629124, HAL.
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