Equilibrium and disequilibrium in economic theory : proceedings of a conference organized by the Institute for Advanced Studies, Vienna, Austria, July 3-5, 1974

This volume is the result of a conference held at the Institute for Advanced Studies, Vienna. There is still a gap reflected both in fundamental methodological differences and in the style of analysis between the Walrasian (and Edgeworthian) tradition of general equilibrium theory and the theoretical and policy problems raised in the framework of Keynesian and post-Keynesian macroeconomics. The conference succeeded in bringing together economic theorists working in fields ranging from abstract problems of mathematical equilibrium analysis to applied macroeconomic theory, and it is hoped that the present volume will contribute to bridging the above-mentioned hiatus.As organizer of the meeting and editor of its proceedings I want to thank the Institute for Advanced Studies for providing facilities and funds. I am also sincerely grateful to all my colleagues from the Institute for their generous help, in particular to Mrs Monika Herkner without whose assistance and organizational talent the conference would certainly not have been the success it in fact -in the opinion of all participants -turned out to have been. Furthermore, I wish to express my gratitude towards all participants in the meeting and contributors to the volume whose patient support of the whole enterprise proved indispensable. To Mrs Elfriede Auracher I am deeply indebted for her skillful and effective general management of the editorial work and her invaluable assistance in compiling the indexes. GERHARD SCHWODIAUER \* Contributions contained in this volume are referred to in the introduction by using small capital letters for the respective name(s) of author(s) while all other references are listed alphabetically and numbered correspondingly, their respective numbers being put in brackets in the text. from S into itselfthen there exists a fixed point s\* = L(s\*) E S) and Kakutani (if S is a non-empty, compact and convex subset of IR m , and L is a correspondence from S into itself such that L(s) is non-empty and convex for all s E Sand {(s, s') I s' E L(s), s E S} is closed in 1R 2m , then there exists a fixed point s\* E L(s\*), s\* E S).Let us consider a determinate system with an equilibrium s\* = Lj(s\*) and a mapping D: S -S describing a displacement (or, disturbance) of sable, and a continuity and a non-satiation condition have to be imposed.Convexity of production and consumption possibility sets and of preferences is one of the most important and most heroic assumptions necessary to obtain an upper-semicontinuous and convex-valued excess demand correspondence. The mathematical tool for dealing with nonconvexities is a theorem by Shapley and Folkman (see, e.g. [25J; also [1 J) saying that any point in the convex hull of the sum of n arbitrary (i.~., not necessarily convex) non-empty subsets Xi c: IR m can be constructed asIn case of full freedom to trade with anyone, i.e., freedom for every trader to join any coalition, we may expect no trader to be satisfied with his allotmen t a h in an allocation A ifhe is able to find partners offering better terms. We call an economy (or, rather, the behavior of traders) competitive -in contrast to collusive behavior -if every trader is always willing to desert any coalition for the prospect of some increase in utility in another trading arrangement. Consequently, competition can be regarded as the process of eliminating dominated allocations by contracting and recontracting [11] which may be conceived of as a fictitious tatonnement-like procedure or may, under certain rather restrictive assumptions of stationarity, take place in real time. In terms of systems theory, the competitive process of However attractive the notion of core may appear to the general equilibrium theorist it must not be overlooked that it suffers from a serious conceptual deficiency. The theory of games seeks to define, prove the feasibility of, and compute rational behavior in multi-person decision making situations involving conflict and cooperation. As is argued in A plausible formulation would be to regard the Cfr's as correspondenceswhere Cjt(a l , b2 , ... , at -b bt ) describes the production techniques avail-be non-negative, were introduced. Non-market-clearing phenomena may also play some role in financial markets. JAFFEE introduces a theoretical basis for modeling disequilibria and spillover effects in such markets and develops an econometric approach to estimating the proposed disequilibrium specification from flow-of-funds data. The papers by STARRETT, AZARIADIS, and DEMOPOULOS concentrate on some specific problems of dealing with the labor market in macroeconomic models. STARRETT challenges the monetarist view that with rational economic agents money is neutral in the long run and that there is no long-run stable Phillips curve on which economic policy could be based. He demonstrates that money can be non-neutral even in a model where individuals are rational maximizers exhibiting no money illusion, and shows that this result leads, if one drops the assumption that wage adjustments were instantaneous, to a Phillips curve trade-off. AZARIADIS analyzes an economy where, under conditions of technological uncertainty, the services of risk-averse workers are employed to produce one consumption good. Labor contracts arising out ofthe dual role of firms as both employers and insurers react to random shocks by varying employment and the distribution of factor payments rather than varying the wage rate and leaving distribution unchanged. In the market for current output equilibrium will then prevail only on average. Consequently, if contracts are not instantaneously renegotiable, non-zero excess demand for labor will be sustainable and, under a variety of non-price rationing rules, be closely related to temporary deviations of income distribution from its competitive level. DEMOPOULOS'S paper develops a macroeconomic model which, contrary to the traditional IS-LM analysis, explicitly incorporates labor market behavior in terms of a preference function, acquisition of information, expectations, search costs, and speeds of LIST OF PARTICIPANTS Front Matter....Pages I-L Front Matter....Pages 1-1 Equilibrium with Respect to a Simple Market....Pages 3-6 On the Role of Complete, Transitive Preferences in Equilibrium Theory....Pages 7-14 Equilibrium in a Market with Incomplete Preferences where the Number of Consumers May be Finite....Pages 15-26 Continuity in General Nonconvex Economies (with Applications to the Convex Case)....Pages 27-38 Are Core Allocations Obtainable as Exchange Equilibria?....Pages 39-45 Equivalence of Competitive and Relative-Core Allocations on a Measure Space of Economic Agents....Pages 47-51 Non-Stable Cores of Exchange Economies....Pages 53-66 Does Perfect Competition in Spatial Markets Maximize Welfare?....Pages 67-72 Walras’ Theory of Capital Formation and the Existence of a Temporary Equilibrium....Pages 73-126 Front Matter....Pages 127-127 Theories of General Economic Equilibrium and Maximum Efficiency....Pages 129-201 Towards a Neo-Austrian Theory of Exchange....Pages 203-212 Competitive and Controlled Price Economies: The Arrow-Debreu Model Revisited....Pages 213-224 Front Matter....Pages 225-225 Equilibrium and Linear Complementarity — An Economy with Institutional Constraints on Prices....Pages 227-237 Marketing Costs and Imperfect Competition in General Equilibrium....Pages 239-254 Oligopoly and its Macroeconomic Implications....Pages 255-276 Risk and Uncertainty. Their Importance for the Homogeneity of Demand and Supply Functions and the Dichotomy Between Real and Monetary Economies....Pages 277-294 Notes on the Economic Consequences of Uncertain Product Quality....Pages 295-314 Corporate Policy, Uncertainty, and the Stock Market....Pages 315-336 Efficiency, Inessentiality and the ‘Debreu Property’ of Prices....Pages 337-359 Front Matter....Pages 361-361 An Approach to the Analysis of Dynamic Processes in Economic Systems....Pages 363-367 Front Matter....Pages 361-361 On Adjustment Dynamics — An Exercise in Traverse....Pages 369-396 On the Long-Run Behaviour of a Competitive Firm....Pages 397-411 Dynamic Models and Economic Growth....Pages 413-449 Front Matter....Pages 451-451 The Qualitative Effects of False Trading....Pages 453-462 Non-Tatonnement and Disequilibrium Adjustments in Macroeconomic Models....Pages 463-495 Existence of an Under-Employment Equilibrium....Pages 497-510 A Neokeynesian Model of Price and Quantity Determination in Disequilibrium....Pages 511-544 The Specification of Disequilibrium in Flow of Funds Models....Pages 545-563 Consumption, Income, and Liquidity....Pages 565-591 A Model of Dynamic Keynesian Equilibrium....Pages 593-610 Many-Good Multiplier Analysis Under Traditional, Classical and Neo-Keynesian Conditions....Pages 611-649 Stochastic Disequilibrium in a Labor Contracts Economy....Pages 651-669 Expectations, the Real Rate of Interest, and Labor Market Behavior in a Macromodel....Pages 671-690 Optimal International Adjustment for a Country in a State of Fundamental Dynamic Disequilibrium....Pages 691-704 International Trade and Payments when Markets Fail to Clear....Pages 705-722 Back Matter....Pages 723-736 This volume is the result of a conference held at the Institute for Advanced Studies, Vienna. There is still a gap reflected both in fundamental meth­ odological differences and in the style of analysis between the Walrasian (and Edgeworthian) tradition of general equilibrium theory and the theo­ retical and policy problems raised in the framework of Keynesian and post-Keynesian macroeconomics. The conference succeeded in bringing together economic theorists working in fields ranging from abstract prob­ lems of mathematical equilibrium analysis to applied macroeconomic theory, and it is hoped that the present volume will contribute to bridging the above-mentioned hiatus. As organizer of the meeting and editor of its proceedings I want to thank the Institute for Advanced Studies for providing facilities and funds. I am also sincerely grateful to all my colleagues from the Institute for their generous help, in particular to Mrs Monika Herkner without whose assistance and organizational talent the conference would certainly not have been the success it in fact - in the opinion of all participants - turned out to have been. Furthermore, I wish to express my gratitude towards all participants in the meeting and contributors to the volume whose patient support of the whole enterprise proved indispensable. To Mrs Elfriede Auracher I am deeply indebted for her skillful and effective general management of the editorial work and her invaluable assistance in compiling the indexes. Proceedings of a Conference Organized by the Institute for Advanced Studies, Vienna, Austria, July 3-5, 1974