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Is there a Walrasian Equilibrium in Exchange Markets with Endowment Effect?

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  • Schwarz, Christian
  • Stroinski, Uwe

Abstract

We provide an axiomatic framework for exchange markets with a willingness- to-pay/willingness-to-accept discrepancy. First, we obtain a two parameter family of market invariants under price-scaling representing the excess demand. One of the parameters can be identified as endowment. The other is a new feature, called demand-supply gap, that leads to classical general equilibrium if zero. Second, we provide representations of price and demand as unbounded operators on an infinite dimensional Hilbert space. We prove that neither can this space be finite dimensional nor can these operators be bounded. Third, if the demand-supply gap is not zero we obtain that price and demand are not simultaneously sharply measurable and consequently a Walrasian equilibrium does not exist.

Suggested Citation

  • Schwarz, Christian & Stroinski, Uwe, 2009. "Is there a Walrasian Equilibrium in Exchange Markets with Endowment Effect?," Ruhr Economic Papers 82, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:82
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    More about this item

    Keywords

    General equilibrium theory; endowment effect : non-existence of equilibrium;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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