walrasian equilibria as limits of noncooperative equilibria part i mixed strategies abstract we examine the connection between walrasian equilibria of a limit economy with infinitesimal firms and the noncooperative cournot equilibria of approximating finite economies with significant firms following earlier work of novshek and sonnenschein we allow for set up cost and permit a minimal form of mixed strategies we depart from them by requiring that the aggregate production set exhibits some degree however small of decreasing returns contrasting with their results it is shown that a regular walrasian equilibrium of a limit economy can always be approximated by a sequence of noncooperative equilibria for the tail of the approximating finite economies thus there is a surprising qualitative discontinuity when one passes from the novshek sonnenschein case of aggregate constant returns to scale of the decreasing returns case of this paper

north south trade export led growth with abundant labour abstract a north south model is developed in which the south is represented as a neo classical dual economy conditions are imposed which make temporary equilibrium unique and walrasian stable and long run balanced growth paths globally asymptotically stable in the short run an expansion of northern demand for southern products always improves the terms of trade in the long run however an increase in the growth rate of northern demand can turn the terms of trade against the south reduce real wages and lower living standards

unemployment and rationality the explanation of persistent excess labor supply is a challenge to macroeconomic theorists in a purely competitive framework it may be argued that unemployment is transitory since wages will react if excess supply is persistent enough for the economy to be driven towards full employment nevertheless classical tatonement models do not support this view since excess demand functions are arbitrary see shafer and sonnenschein 1982 and convergence to the walrasian equilibrium cannot be guaranteed fixed price theory accounts for unemployment at the cost of total indeterminacy of equilibrium allocations many efforts have been made in order to narrow down this set roughly speaking these attempts can be classified into two groups i the conjectural approach cf benassy 1976 negishi 1974 grandmont and laroque 1976 and hahn 1977 1978 ii the game theoretical approach cf hart 1982 madden 1983 and silvestre 1988 in this paper we want to contribute to the first tine of thinking by applying the rationality notion developed for a conjectural equilibrium model in trujillo 1985 to a standard three goods fixed price model both kinds of equilibria are equivalent see john 1985 the motivation behind our approach is that when agents set prices they have to respect the rules of the mechanism for instance in hahn s rationality approach agents may change prices even if they are not constrained however the assumed mechanism is such that this behavior is not allowed see below therefore agents must be cheating le hahn s notion is one of incentive compatibility and it is not surprising that he obtained negative results in our approach agents may change prices if they are conjecturable in the following sense if buyers are rationed they can increase conjecture higher prices and if sellers are constrained

on the existence of conjectural equilibria with a priori chosen rationing patterns hahn s model of conjectural equilibrium hahn 1978 is investigated a proof of existence of non walrasian conjectural equilibrium for a regular economy is given the method used enables one to choose a priori and within a large class the rationing pattern to emerge in equilibrium for instance an equilibrium with a rationing pattern of general supply rationing is thereby shown to exist also it is possible to select a priori one commodity money which is never rationed these results are valid for the fix price model as well the method of our proof is basically a generalization of gale s method gale 1978

the objective demand curve in general equilibrium with price makers objective demand curves in general equilibrium with explicitly modeled price makers have been defined so far in a number of specific cases this paper gives a general definition of such an objective demand curve the associated general equilibrium concept is defined and sufficient existence conditions are given copyright 1987 by royal economic society

general equilibrium theory with imperfect competition abstract this survey is organized as follows i introduction ii the main issues iii negishi s model iv objective demand in the cournot nash framework v objective demand in the bertrand nash framework vi the assumption of quasi concavity of the profit functions vii compromises between the conjectural and the objective approach viii insights into the notion of perfect competition ix conclusion

on the presence and absence of free entry in oligopoly equilibria abstract this note provides sufficient conditions for the presence and absence of free entry at cournot equilibria and some other oligopoly equilibria in a market for a homogeneous commodity

monopolistic quantity rationing in this paper we address the question of whether a price setting monopolist can improve his welfare by imposing quantity constraints on buyers we show first that if all buyers are identical quantity rations are not useful for the monopolist we then show by means of an example that if buyers are diverse quantity rations may be desirable it is shown that if there are only two commodities the only constraint that may be useful to the monopolist is a zero constraint on one of the two commodities an example shows that this property does not hold for more than two commodities

rational responses and rational conjectures abstract this paper utilizes a pure trade imperfect competition model and discusses the rationality problem arising from the fact that agents have to make conjectures about the markets to set prices optimally the objective is to show that there may be inefficient allocations with the agents behaving rationaly in the same context hahn rev econ stud 45 1978 1 17 proposed a notion of rationality under which the existence results obtained were negative this paper argues that hahn s is a strong notion of rationality that requires the mechanism to be incentive compatible thus an alternative notion that refers exclusively to the rationality of the conjectures is proposed and positive results on existence obtained

an equilibrium model with involuntary unemployment at flexible competitive prices and wages this paper presents a general equilibrium model in which all prices and quantities transacted are the direct choices of econom ic agents there is no walrasian auctioneer multiple subgame perfect equilibria exist with prices and wages at their walrasian levels among the equilibrium allocations are the walrasian ones but there a re also outcomes in which price and wage taking workers are rationed in the labor market and are unable to sell all the labor they want a t the prevailing wage this involuntary unemployment results from sel f fulfilling expectations of inadequate excess demand as in some inte rpretations of keynes s ideas copyright 1987 by american economic association

bertrand the cournot paradigm and the theory of perfect competition in this paper we extend to a general equilibrium context bertrand s classic critique of cournot we present a game theoretic model of a pure exchange monetary economy in which buyers as well as sellers announce both quantities and prices when buyers act strategically the edgeworth nonexistence problem is circumvented under weak conditions a pure strategy nash equilibrium exists for this game we make precise the bertrand idea that when agents in a finite economy are permitted to compete by price the resulting allocations will be competitive specifically the nash equilibria for our game yield allocations that are competitive allocations for the underlying exchange economy provided that there are at least two buyers and two sellers actively trading in every market under this characterization of strategic behaviour then two is enough for competition our objective is to provide a general equilibrium game theoretic formulation of the idea of bertrand price competition bertrand s classic critique of cournot can be paraphrased as follows when agents regard price rather than quantity as the strategic variable no price above the competitive equilibrium price can be sustained as a noncooperative equilibrium this idea is made precise in our game theoretic model of a pure exchange economy in which buyers as well as sellers act strategically our treatment of buyers behaviour is novel while sellers announce price and quantity vectors buyers specify sums of money and menus of alternative nonmonetary commodity bundles a buyer s action is a commitment to purchase any one of the specified commodity bundles in exchange for the sum of money our first result is that under weak conditions a nash equilibrium in pure strategies exists the paper thus also points to a way of resolving the classical edgeworth nonexistence problem second all nash equilibria yield allocations that are competitive for the underlying economy provided that in every market at least two buyers and two sellers are actively trading under this characterization of strategic

the cournot bertrand model and the degree of product differentiation abstract we consider a duopoly model with a cournot type firm and a bertrand type firm both survive and the equilibrium is stable when there is sufficient product differentiation with no differentiation only the cournot type firm survives and the outcome is perfectly competitive

productivity gaps and underemployment abstract we examine the relationship between productivity gaps inside an industry and the level of employment in the economy in the context of a simple general equilibrium model which comprises a cournot industry we find that underemployment is minimized when such productivity gaps disappear

cournot equilibrium in large markets under increasing returns abstract we consider cournot partial equilibria in large markets where firms have decreasing average costs it is shown that the outcome of competition is approximatelyefficient if entry is free

terms of trade and domestic distribution export led growth with abundant labour abstract a general equilibrium macro model is constructed to explore effects of export led growth policies on the terms of trade and the domestic distribution of a developing region with abundant labour this region the south trades with another the north they have different technologies and supplies of factors it is shown that under certain conditions of dualism in the production of goods and of abundant labour supply in the south an increase in the volume of exports from the south may bring about a sustained worsening of the south s terms of trade with the north even if this increase in exports is due to a positive shift in demand from the north this change in the terms of trade is accompanied by a sustained loss of purchasing power of wages within the south these results take place in a walrasian stable market when technologies are more homogenous and labour less abundant the results are reversed increased exports will take place together with improvements in terms of trade and a tendency to equalise factor prices between the regions the results argue for coordination of domestic and international policies with special attention to technologies and labour markets

when borch s theorem does not apply some key implications of market incompleteness with policy relevance today markets are incomplete when the assets available to the agents do not span the space of future contingencies efficiency is then assessed by the weak criterion of constrained efficiency efficiency relative to the set of allocations compatible with the asset structure that criterion requires firms to optimise relative to shadow prices reflecting shareholders preferences yet even when firms do so competitive equilibria on the markets for assets and commodities fail generically to be constrained efficient section 3 pareto superior allocations can be implemented through price wage rigidities and quantity constraints section 4 but nominal rigidities are conducive to multiple equilibria implying endogenous macroeconomic uncertainties that compound the primitive exogenous uncertainties section 5 various policy implications can be drawn which are of some relevance to the current crisis

public facility location and urban spatial structure equilibrium and welfare analysis we consider a model in which the location of a single public facility is fixed somewhere in an urban area there are two firms that choose locations the locations of households competing for space in the land market are also endogenous the analysis examines the nature of the spatial equilibrium and shows that different kinds of equilibria can emerge depending on the parameters of the model the welfare implications of changes in transportation cost and the location of the public facility are studied and appear to be non standard for some equilibrium configurations

limited knowledge of demand and oligopoly equilibria abstract in a standard model of oligopoly with differentiated products the existence of an equilibrium at which the first order conditions for profit maximisation are simultaneously satisfied for all firms is proved and this is done without imposing any restrictions on the demand functions this is an equilibrium in the following sense although some firms may not necessarily be maximising their profits nevertheless if each firm s knowledge of demand is limited to the linear approximation of its own demand curve then it will believe that it is indeed maximising its profits

oligopoly equilibria when firms have local knowledge of demand this paper investigates the existence of oligopoly equilibria when firms arrive through local price experiments at a correct estimation of their demand curves in a neighborhood of a given statu s quo the author provides sufficient conditions for the existence of a local nash equilibrium defined as a point where each firm is at a local maximum of its profit function given the prices charged by th e other firms he also provides two examples one of a duopoly with l ocal nash equilibria but no nash equilibria and the other of a duopol y with no local nash equilibria copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

increasing returns and perfect competition the role of land abstract the classical inconsistency between increasing returns and perfect competition is studied for example if firms must pay a fixed cost of entry but then can produce using a constant returns to scale technology they will generally operate at a loss necessitating a government subsidy in order to attain an efficient allocation here we provide examples demonstrating that perfect competition and increasing returns can be consistent by extending the alonso model to include production the key is that producers use intervals of land and the price they pay for land interior to the parcels can be adjusted to provide an implicit subsidy

quantity leadership and social inefficiency a game of simultaneous free entry and sequential output choices is analyzed firms enter simultaneously in stage 1 by paying a fixed cost and they choose output levels sequentially in subsequent stages at the subgame perfect equilibrium of the game the production level of a firm is decreasing with the order of the firm in the decision making the firm that is the last to choose output produces the same amount as a typical firm in the standard symmetric simultaneous moves cournot game moreover industry output and market price are identical in the sequential and the symmetric cournot games it follows that in the sequential game there are fewer active firms and higher total surplus than in the standard symmetric cournot game strategic asymmetry results in higher concentration and higher total surplus without an increase in price

general equilibrium with free entry a synthetic approach to the theory of perfect competition the purpose of this essay is to explain a new theory of perfect competition that synthesizes the arrow debreu mckenzie and marshallian theories and summarizes the recent work of a large number of researchers the synthetic theory provides a logically precise general equilibrium framework that can be used both for positive analysis as well as to form a basis for the classical theorems of welfare economics in these aspects it follows the adm theory however as in the marshallian theory there is free entry in the form of an unbounded pool of firms which have access to the existing technology also as in the marshallian theory the average cost curves available to each firm are u shaped in contrast to both the marshallian and the adm theories we do not take price taking as a hypothesis we use the term perfect competition to describe a situation in which firms are arbitrarily small relative to the markets in which they are involved the firms in our model correctly perceive the effect of the amount that they place on the market on prices and they act to maximize profit with this in mind perfectly competitive equilibria are defined as the limit points of equilibria as firms become small relative to the market and following cournot we observe that as firms become small their ability to influence price disappears a new condition is identified which is important for the viability of competitive markets loosely speaking this condition requires that prices provide the proper entry signals for firms if one thinks of each firm as associated with the use of an unpriced and nondivisible resource sometimes referred to as entrepreneurship then in equilibrium the returns to that factor must fall with entry and rise with exit not only the stability theorems of the synthetic theory but also the existence theorem reject the application of the competitive model to a regime in which entry drives up and exit reduces the profit of similar firms

export led growth with abundant labour a defense of orthodoxy abstract using a general equilibrium model of north south trade graciela chichilnisky has concluded that if dualism and labour abundance in the south are sufficiently pronounced the export supply curve of that region will be negatively sloped and as a result the familiar neoclassical results of an increase in the north s demand for these exports and of an export policy in the south are reversed we show that the neoclassical results are valid whether or not the supply curve is downward sloping

a remark on conjectural equilibria the notion of a conjectural equilibrium was introduced by hahn 1978 the underlying idea is to explain why prices may not change in a situation where markets do not clear and rationing occurs in a conjectural equilibrium prices are rigid because it is not in the interest of agents to change them more precisely agents conjecture prices at which they can achieve a trade beyond the given quantity constraints such that it is better for them to trade at the observed market prices within the constraints therefore the question of whether an allocation for given prices and quantity constraints is a conjectural equilibrium depends crucially on the agents conjectures in this situation by allowing arbitrary conjectures many such equilibria will exist as has already been claimed by hahn 1977 a 1977b and 1978 in this note it is shown that there are as many conjectural equilibria as there exist fixed price equilibria which satisfy the condition of voluntary exchange only to be more specific we prove that any conjectural equilibrium is a fixed price equilibrium and that for a given economy there are conjectures such that any fixed price equilibrium is a conjectural equilibrium in other words the kind of endogenous price setting described in hahn s model turns out to be equivalent to the fix price approach in the sense that both lead to the same allocations in the economy the result confirms the statement in drazen 1980 that by allowing arbitrary conjectures only one exogenous variable prices has been replaced by another conjectures

welfare losses under cournot competition abstract in a market for a homogeneous good where firms are identical compete in quantities and produce with constant returns the percentage of welfare losses pwl is small with as few as five competitors for a class of demand functions which includes linear and isoelastic cases we study markets with positive fixed costs and asymmetric firms we provide exact formulae of pwl and robust constructions of markets were pwl is close to one in these two cases we show that the market structure that maximizes pwl is either monopoly or dominant firm depending on demand finally we prove that pwl is minimized when all firms are identical a clear indication that the assumption of identical firms biases the estimation of pwl downwards

walras keynes equilibria coordination and macroeconomics in decentralised market economies supply constrained equilibria may persist as coordination failures sustained but not caused by price rigidities this feature may be arbitrarily severe even at prices compatible with competitive equilibrium the supply constraints may originate in rational expectations some implications for macroeconomics are drawn the possibility of coordination failures explains why organised labour may resist wage flexibility these features are illustrated in elementary macroeconomic prototypes like rbc or barro grossman malinvaud prototypes

perfectly competitive markets as the limits of cournot markets a perfectly competitive partial equilibrium market for a single homogeneous good with a bounded continuum of infinitesimal firms is considered cost functions are essentially unrestricted and are allowed to vary smoothly across firms a sequence net of cournot markets each with a finite number of firms which converge smoothly to the perfectly competitive limit in terms of both the inverse demand functions and the distributioon of firm technologies is introduced and it is shown that all markets sufficiently far along the sequence have a cournot equilibrium and all the cournot equilibria converge to the perfectly competitive equilibrium of the limit market

linear inequality methods to enforce partnerships under uncertainty an overview we review different generic conditions on stochastic outcome functions to enforce either efficient or nearly efficient partnerships their logical relationship is explored two kinds of conditions are considered however the property for an action profile to be compatible plays a crucial role in both kinds also two kinds of enforcement mechanisms are considered enforcement through utility transfers and enforcement through repetition

permit banking in emission trading competition arbitrage and linkage abstract several existing or proposed climate policies have considered bankable permits in a cap and trade c t program that covers beyond a single sector e g electric power or allows the program to link to external c t programs in other regions this paper develops a model of permit banking under imperfect competition and imperfect inter temporal arbitrage in which the firms in one dominant sector can exert market power in both product and permit markets while those in other sectors or linked programs are perfectly competitive a simple analytical model is developed to generate contestable hypothesis we further extend the model to account for the physical power system institutional rules and market conditions and then apply it to the pennsylvania jersey maryland pjm market we show that if the dominant firm has market power then the permit price rises at a higher rate than the discount rate contrary to perfectly competitive permit market where the permit price rises at the discount rate following the classic hotelling s rule furthermore under a declining emissions cap system with the permits front loaded in early time periods the dominant firm has an incentive to suppress the permit prices monopsony when buying the permits in early periods and then inflate the permit prices monopoly when selling them in later periods numerical results of the pjm case are consistent with the analytical conclusion

consumer confidence and economic fluctuations if consumers become pessimistic about the state of the economy can there be a slowdown in output even if their pessimism is not based on economic fundamentals recent macroeconomic models show the answer is yes if there are strategic complementarities and multiple equilibria we investigate the link between consumer confidence and economic fluctuations using vector autoregressions in all models after controlling for economic fundamentals the hypothesis that consumer sentiment does not cause gnp in the granger sense can be rejected variance decompositions suggest that consumer sentiment accounts for between 13 and 26 percent of the innovation variance of gnp

on the dynamic efficiency of bertrand and cournot equilibria abstract this paper compares bertrand and cournot equilibria in a differentiated duopoly with r d research and development competition it shows that cournot competition induces more r d effort than bertrand competition however the price is lower and output is larger in bertrand than in cournot competition furthermore the bertrand equilibrium is more efficient than the cournot equilibrium if either r d productivity is low or spillovers are weak or products are very different if r d productivity is high spillovers are strong and goods are close substitutes then the bertrand equilibrium islessefficient than the cournot equilibrium journal of economic literatureclassification number l13

multiplicity of cournot equilibria and involuntary unemployment abstract in an overlapping generations model with cournot competition on the goods market it is shown that a continuum of stationary states and perfect foresight trajectories exists with unemployment at arbitrary low wages decisive for this is the influence that different forecast functions have on the objective demand curve even though they are consistent with perfect foresight with an example it is shown that simple adaptive and constant memory forecast rules generate such unemployment equilibria the corresponding temporary equilibrium dynamics may display stable unemployment and unstable full employment equilibria journal of economic literatureclassification numbers d43 d51 e24

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

elasticity of substitution and the perverse export supply response abstract this paper re examines the possibility of perverse export supply response in the south in a 2 2 2 trade model we find that such perverse response is impossible if the elasticity of substitution in the production of the basic good in the south is greater than or equal to unity

multi sector model of tradable emission permits this paper presents a multi sector model of tradable emission permits which includes oligopolistic and perfectly competitive industries the firms in oligopolistic industries are assumed to exercise market power in the tradable permit market as well as in the product market specifically we examine the effects of the initial permit allocation on the equilibrium outcomes focusing on the interaction among these product and permit markets it is shown that raising the number of initial permits allocated to one firm in an oligopolistic industry increases the output produced by that firm under certain conditions raising a clean less polluting firm s share of the initial permits can lead to reductions in both the product and permit prices we discuss criteria for the socially optimal allocation of initial permits considering the trade off between production inefficiency and consumer benefit

microeconomic uncertainty and macroeconomic indeterminacy we propose a stylized intertemporal macroeconomic model wherein the combination of decentralized trading and microeconomic uncertainty taking the form of privately observed and uninsured idiosyncratic shocks creates an information problem between agents and generates indeterminacy of the macroeconomic equilibrium for a given value of the economic fundamentals the economy admits a continuum of equilibria that can be indexed by the sales expectations of firms at the time of investment the walrasian equilibrium is one of these possible equilibria but it is reached only if firms are optimistic enough with a weaker degree of optimism equilibrium output employment and real wages will be lower than in the walrasian equilibrium moreover the range of possible equilibria will depend positively on the wage elasticity of the labour supply and on the magnitude of the information problem between buyers and sellers in our case the variance of the idiosyncratic shocks stochastic simulations performed on a calibrated version of the model show that pure demand expectation shocks may generate business cycle statistics that are not inconsistent with the observed ones 2006 elsevier b v all rights reserved

graciela chichilnisky s model of north south trade abstract the model of the effects of north south trade set out by chichilnisky in the april 1981 issue of the journal of development economics is shown to contain a number of errors the model is presented anew in this note after corrections are made one can still obtain results similar in spirit to some of those chichilnisky tried to derive although the interpretation of the cause of the results must be substantially altered in particular it is shown that for appropriate parameter values in this model one will find that it is possible for an increase in the demand for the good the north exports to lead to 1 a worsening of the terms of trade for the south 2 a worsening of the distribution of factor incomes in the north and in the south 3 a reduction in the total export revenues of the south and 4 at the same time an increase in the physical volume of the south s exports the cause is in essence a shift in world demand from the good the south exports to the good the north exports which leads to a terms of trade loss for the south income effects following from the terms of trade loss then lead to a situation where the south s own demand for its export good falls by more than its supply thus leading to the preverse effect of an increase in the volume of its exports the paper also considers the model of chichilnisky and cole 1978 this model is similar to that of chichilnisky 1981 and is used to examine the same issues but is closed in a different way it is shown that this second model may give similar results as the first but that also a quite different set of results is now possible closure is therefore shown to play a key role

on the rate of convergence of oligopoly equilibria in large markets an example abstract in this note we explore the rate of convergence of cournot nash equilibria with free entry and those with an entry deterring monopolist in a replicated market where the market demand functions is linear and firms face linear cost curves

diversification and competition financial intermediation in a large cournot walras economy abstract an economy with partially diversified imperfectly competitive cournot intermediaries is replicated the cournot walras equilibrium converges to the perfectly competitive equilibrium with no uncertainty despite the convergence the tension between diversification and competition persists when the economy becomes large and is manifested in the rates of convergence of price quantities and per capita welfare to their respective limits to maximize the rate of convergence of per capita welfare resources must be allocated in a particular way that balances the gains from better diversified intermediaries and the gains from more competition in the intermediation sector journal of economic literature classification numbers d43 d61 d89 g10 g21 l10 l16 o16

rationality of self and others in an economic system in this paper i want to disentangle some of the senses in which the hypothesis of rationality is used in economic theory in particular i want to stress that rationality is not a property of the individual alone although it is usually presented that way rather it gathers not only its force but also its very meaning from the social context in which it is embedded it is most plausible under very ideal conditions when these conditions cease to hold the rationality assumptions become strained and possibly even self contradictory they certainly imply an ability at information processing and calculation that is far beyond the feasible and that cannot well be justified as the result of learning and adaptation let me dismiss a point of view that is perhaps not always articulated but seems implicit in many writings it seems to be asserted that a theory of the economy must be based on rationality as a matter of principle otherwise there can be no theory this position has even been maintained by some who accept that economic behavior is not completely rational john stuart mill 1909 bk 2 ch 4 argued that custom not competition governs much of the economic world but he adds that the only possible theory is that standard economic doctrine makes assumptions of rationality that have very strong implications for the complexity of individuals decision processes the most complete assumptions of competitive general equilibrium theory require that all future and contingent prices exist and be known in fact of course not all these markets exist the incompleteness of markets has several side consequences for rationality for one thing each decision maker has to have a model that predicts the future spot prices this is an informational burden of an entirely different magnitude than simply optimizing at known prices it involves all the complexity of rational analysis of data and contradicts the much praised informational economy of the price system it is also the case that equilibria become much less well defined similar problems occur with imperfect competition this research was supported by the office of naval research grant onr n00014 79 c 0685 at the center for research in organizational efficiency institute for mathematical studies in the social sciences stanford university stanford california

shopping externalities and self fulfilling unemployment fluctuations we propose a novel theory of self fulfilling fluctuations in the labor market a firm employing an additional worker generates positive externalities on other firms because employed workers have more income to spend and have less time to shop for low prices than unemployed workers we quantify these shopping externalities and show that they are sufficiently strong to create s complementarities in the employment decisions of different firms and to generate multiple rational expectations equilibria equilibria differ with respect to agents rational expectations about future unemployment we show that negative shocks to agents expectations lead to fluctuations in vacancies unemployment labor productivity and the stock market that closely resemble those observed in the us during the great recession

terms of trade and domestic distribution a comment abstract this note comments on a paper by chichilnisky in the april 1981 issue of this journal it is shown that within the context of her model a rightward shift in the demand curve of the north for exports from the south can never result in a worsening of the terms of trade for the south it is however possible that the quantity of exports from the south may decline in the new equilibrium due to the income effect of the improved terms of trade

corrective tax and subsidy policies in economies with bertrand competition abstract this paper shows how we can correct market failure due to imperfect competition by using taxes and subsidies the analysis is carried out at the general equilibrium level and the importance of objective demand curves is stressed the main conclusions are first it is possible to tax the economy back to the walrasian equilibrium by using linear taxes and subsidies second the welfare theorem holds in an imperfectly competitive economy with corrective taxes and subsidies third a competitive equilibrium can also be achieved by the use of ad valorem taxes and specific output subsidies

a model of imperfect competition with keynesian features the recent literature on the reappraisal of keynes has viewed keynesian equilibria as arising when prices are fixed and effective demands and supplies are equilibrated through the adjustment of quantities one problem with this approach is that it lacks a theory of price determination in particular of why prices are fixed in the present paper we show that a number of keynesian features arise in a model in which prices are fully flexible but where agents have some monopoly power one advantage of this approach is that it provides a theory of the determination of both prices and quantities

on the dynamic analysis of cournot bertrand equilibria abstract we consider a setting where firms in the first stage invest in cost reducing r d in the market stage one firm sets a quantity and another sets a price we prove that the quantity setting firm invests more in r d has a lower price and produces higher quantity than the price setting firm we also consider welfare implications

general equilibrium concepts under imperfect competition a cournotian approach in a pure exchange economy we propose a general equilibrium concept under imperfect competition the cournotian monopolistic competition equilibrium and compare it to the cournot walras and the monopolistic competition concepts the advantage of the proposed concept is to require less computational ability from the agents the comparison is made first through a simple example then through a mon abstract concept the p equilibrium based on a general notion of price coordination c 1997 academic press

monopolistic competition in a large economy with differentiated commodities a correction in hart 1979 a model of monopolistic competition in a large economy with differentiated commodities was developed in this model firms had a choice whether to set up or not one feature of the model was that free entry of firms was not assumed barriers to entry were captured by assuming that there was a large generally infinite set of potential firms f corresponding to each f f there was a firm called firm f with a production set y f each firm had a set up cost associated with it only very weak conditions were placed on the set f and the production set mapping y so that in particular the case where different firms could produce a commodity on different terms was allowed for the economy was made large by replicating the consumer sector keeping the production sector i e the set of potential firms f fixed the number of operating firms in equilibrium generally increased however since in view of the set up costs there was room for more firms in a large economy unfortunately it turns out that this procedure while correct does not capture quite what was intended in particular while in the resulting monopolistically competitive equlibrium some firms will earn supernormal profits it can be shown that for any 0 the per capita number of firms earning profits in excess of tends to zero as the size of the consumer sector tends to infinity see corollary 6 in the appendix to hart 1979 in other words in per capita terms almost all firms earn approximately zero profits in a large economy thus while barriers to entry may be significant in absolute terms in per capita terms they are negligible the way round this difficulty is to drop the assumption that the set of potential firms is fixed instead substitute the assumption that the set of potential firms in the economy re where the consumer sector is replicated r times is given bywhere f is as before that is one replicates the set of potential firms at the same time as the consumer sector then the theorems of hart 1979 continue to hold corollary 6 in the appendix must be modified as follows corollary 6 there exists h 0 such thatfor all f f corollary 6 is proved below otherwise the proofs of theorem 1 and proposition 2 are unchanged one no longer sets h 1 after corollary 6 as an example f might consist of one firm with an efficient technology for producing some commodity and one firm with an inefficient technology then in the economy re there will be r potential firms with the efficient technology and r potential firms with the inefficient technology it is easy to construct cases where both types of firms operate in the monopolistically competitive equilibrium in re and the efficient firms earn supernormal profits which are bounded away from zero as r thus barriers to entry which are significant in per capita terms are now allowed for a justification for replicating f along with the consumer sector can be given in the above example the efficient firms may owe their superior technology to the fact that they are situated on good land say of which there is a scarcity thus the supernormal profits are just rents on the land when one replicates the economy it is natural to replicate the scarce land and hence the number of firms which are situated on it so as to keep everything constant except for scale note finally that it may be possible to generalize the analysis to the case where the set of potential firms in the economy re is given by rf where 1f 2f are exogenously specified sets and rf is not necessarily the r fold union of some set f we have not investigated this however proof of corollary 6 suppose not then for each h 0 we can find f f with by lemma 5 2 r f h for all r some r but in re there are r firms identical to firm f and so each of these firms makes profit in excess of h in the monopolistically competitive equilibrium when r r hence total per capita profits of all firms exceed h in equilibrium when r r it follows that letting h we can find a subsequence of the economies re such that total per capita profits tend to infinity along the subsequence however applying corollary 4 and an argument similar to that in a 30 a 32 we see that arp a dry1 a is bounded hence so are per capita profits arp a dry1 a ry0 contradiction

imperfect competition and fixprice equilibria when goods are gross substitutes it is possible in principle that the price quantity pair generated by a model of imperfect competition may satisfy the conditions voluntary trading and absence of frictions for a fixprice equilibrium it is shown that imperfect competitors will typically satisfy voluntary trading provided that appropriate gross substitute assumptions are satisfied hence such assumptions are seen to ensure that the solutions of some well known imperfectly competitive general equilibrium models are indeed fixprice equilibria thus bringing together two important traditions in theoretical microeconomics copyright 1991 by the editors of the scandinavian journal of economics

gains from trade stability and profits a comment on chichilnisky s terms of trade and domestic distribution export led growth with abundant labour abstract this paper develops further the stability and comparative static properties of a model of north south trade due to chichilnisky chichilnisky established that in a perfectly competitive market an increase in the exports of a labor intensive good by a labor abundant developing country may make the exporter worse off we give sufficient conditions for this to benefit the northern importer as well an expansion of labor intensive exports thus leads to a net transfer of welfare from the exporting to the importing country we then investigate alternative approaches to stability analysis in constant returns models and show that under most reasonable definitions of stability these results occur at a walrasian stable competitive equilibrium

cournot equilibrium with free entry the case of decreasing average cost functions this paper investigates in the context of a market for a homogeneous commodity the asymptotic properties of cournot equilibria with free entry when the size of the market increases indefinitely the analysis focuses on the case where the average cost function is always decreasing and the marginal cost function is non decreasing for all sufficiently large outputs

a model of the natural rate of unemployment since the publication of edmund phelps volume the new macroeconomics has treated the labor market as a dynamic process of rational search by unemployed workers for available vacancies wages are viewed as at least potentially flexible though free contracting between workers and firms may lead to fixed wages in the short run imperfect information is a crucial element of the theory for it implies both a need for contracting and a need for rational search rather than simple market clearing in each period a positive rate of frictional unemployment may exist in equilibrium denoted as the natural rate this unemployment is due to the frictions in the search process and imperfections in information rather than to any deficiency in aggregate demand milton friedman defined the natural rate as the level that would be ground out by the walrasian system of general equilibrium equations provided there is embedded in them the actual structural characteristics of the labor and commodity markets including market imperfections stochastic variability in demands and supplies the cost of gathering information about job vacancies and labor availabilities the costs of mobility and so on p 8 this paper reexamines the micro foundations of the natural rate in a model of labor market equilibrium in which turnover flows and imperfect information are explicitly considered workers may quit their current jobs to enter the unemployment pool in order to search among available vacancies for a more preferred position firms economize on turnover by an appropriate wage policy

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

walrasian equilibria as limits of noncooperative equilibria part ii pure strategies abstract we examine the connection between walrasian equilibria of a limit economy with infinitesimal firms and noncooperative cournot equilibria of approximating finite economies with significant firms nonconvex production sets decreasing returns in the aggregate and endogenous determination of the number of active firms are allowed a walrasian equilibrium is a limit of pure strategy noncooperative equilibria only if a condition loosely analogous to downward sloping demand in the partial equilibrium constant returns to scale case holds the condition is also sufficient to guarantee the existence of a robust sequence of pure strategy noncooperative equilibria which converges to the walrasian equilibrium

locally consistent oligopolistic equilibria are cournot walras equilibria abstract a kth order locally consistent equilibrium is an imperfectly competitive general equilibrium point at which firms only perceive at kth order taylor expansion of their true demand curves it is shown that the set of kth order locally consistent equilibrium strategies coincides with the set of cournot walras equilibria as soon as k 1 under simple regularity conditions

terms of trade and domestic distribution a comment abstract in a recent issue of this journal chichilnisky 1981 develops a north south two good static model to explore the implications of export led growth policies for the south s terms of trade and income distribution it is my contention that most of the results of this paper are invalid as stated furthermore i claim that the problems with these results are due in good part to mistakes when dealing with the elementary properties of the model namely existence uniqueness and stability of equilibria the first part of this note reviews these properties and the main results of chichilnisky 1981 are discussed in the final part

persistence and volatility of beveridge cycles this paper aims to explain the magnitude and cyclical behavior of the fluctuations in unemployment and vacancies adding demand externalities to an otherwise standard search and matching model reduces the need for exogenous shocks in explaining these fluctuations under plausible parameter values the equilibrium dynamics include a stable limit cycle that resembles the empirically observed counterclockwise cycles around the beveridge curve quantitatively these endogenous beveridge cycles can explain half of the volatility and almost all persistence of unemployment without any exogenous forces avoiding the amplification and propagation problems of the standard model