We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
The probability approach to general equilibrium with production.
- Authors
Magill, Michael; Quinzii, Martine
- Abstract
We develop an alternative approach to the general equilibrium analysis of a stochastic production economy when firms’ choices of investment influence the probability distributions of their output. Using a normative approach we derive the criterion that a firm should maximize to obtain a Pareto optimal equilibrium: the criterion expresses the firm’s contribution to the expected social utility of output, and is not the linear criterion of market value. If firms do not know agents utility functions, and are restricted to using the information conveyed by prices then they can construct an approximate criterion which leads to a second-best choice of investment which, in examples, is found to be close to the first best.
- Subjects
ECONOMIC equilibrium; PRODUCTION (Economic theory); STOCHASTIC processes; ECONOMIC models; PRODUCTION functions (Economic theory); PARETO optimum
- Publication
Economic Theory, 2009, Vol 39, Issue 1, p1
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-008-0336-x