General Equilibrium by John Eatwell, Murray Milgate, Peter Newman (eds.)

By John Eatwell, Murray Milgate, Peter Newman (eds.)

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The theorem proved by Radner only finds a 'pseudo-equilibrium' where the value of total excess supply (of shares) is minimized. In the foregoing discussion it has been assumed that only a subset, possibly small, of the potential Arrow- Debreu markets is open. It is possible to justify the selection of markets which are open by postulating costs for carrying out transactions. If the markets which are open are given, the previous equilibria may be supported by assigning infinite transactions costs to the lost markets and zero costs to the open ones.

1977. Temporary general equilibrium theory. Econometrica 45, 535-72. M. 1983. Money and Value. New York: Cambridge University Press. M. and Younes, Y. 1972. On the role of money and the existence of a monetary equilibrium. Review of Economic Studies 39, 355-72. R. 1973. Temporary general eqUilibrium in a sequential trading model with spot and future transactions. Econometrica 41, 1103-23. R. 1977. The nonexistence of informational equilibria.. Review of Economic Studies 44,451-63. J. 1981: An introduction to the theory of rational expectations under asymmetric information.

Markets which work in this way would correspond quite well to the original Walrasian model. Various results on the existence of a general equilibrium have been reached with special models of production by firms. One theorem of Radner extends the existence of an equilibrium of plans and price expectations to this context. His assumptions are: (1) Consumers satisfy the usual conditions on convexity, non-satiation, and positive endowments. (2) Consumers own the shares of firms and each consumer owns shares in every firm.

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