Computation of equilibria in an economy with increasing returns to scale technologies (Q2277350)

The purpose of this paper is to show that equilibria in an economy with increasing returns to scale technologies are computable. The last fifteen years have seen a growing interest in the investigation of the effect of policy changes in general equilibrium models. As a consequence, the identification of general equilibrium models whose equilibria can be computed has become an active research area in mathematical economics. We consider an economy with several firms and several consumers. Each firm has a production set and each consumer has a utility function and an initial endowment. It is well-known that the competitive equilibrium of an economy with convex technologies is computable as the proof of its existence relies on Brouwer's fixed point theorem or on one of its variants. The same is not true of economies with non-convex technologies. Non-convex technologies arise when one allows for the presence of fixed costs or increasing returns to scale. In economies with such technologies, the price taking profit maximization behavior of firms is not consistent with the existence of equilibria. However, if firms follow pricing rules, i.e., each firm has a mapping from the boundary of the production set to the price simplex, then, under certain assumptions, there may exist an equilibrium. In this paper we shall describe an algorithm for computing the equilibrium of an economic model of this type.