On stability analysis with disequilibrium awareness (Q1117131): Difference between revisions

In the literature on the stability of general equilibria the possibility of the awareness of agents of disequilibrium adjustment towards equilibrium is generally neglected. The existing adjustment processes may therefore often be criticised as being of a mechanical nature, since their properties are not reflected in the behaviour of the individual agents. In this paper, the authors extend earlier approaches by Fisher in order to derive globally stable adjustment processes where agents are aware of the type of adjustment they are exposed to. They define a wide class of deterministic trade mechanisms based on final trade functions and deadweight costs. They then consider orderly markets (where at most one side of the market is rationed). The states of these markets are represented by a vector of parameters \(\tau \in {\mathbb{R}}^ n\), the signal set of the trading mechanisms, which are used to define effective and regular trade mechanisms. The paper then analyses the dynamic process \(\dot p=f(\tau)\), p the vector of prices. It is shown (by corresponding monotone changes in utility levels) that it gives rise to global asymptotic stability in the above sketched framework.