Disequilibrium Foundations of Equilibrium Economics

Abstract

The most common mode of analysis in economic theory is to assume equilibrium. Yet, without a proper theory of how economies behave in disequilibrium, there is no foundation for such a practice. The necessary step in proposing a foundation is the formulation of a theory of stability, and in this 1984 book, Professor Fisher is primarily concerned with this subject, although disequilibrium behavior itself is analyzed. The author first undertakes a review of the existing literature on the stability of general equilibrium. He then proposes a more satisfactory general model in which agents realize their state of disequilibrium and act on arbitrage opportunities. The interrelated topics of the role of money, the nature of quantity constraints, and the optimal behaviour of arbitraging agents are extensively treated.

Competitive Market Mechanisms as Social Choice Procedures

“…Some relatively recent attempts to formalize this idea have appeared in Fisher (1981Fisher ( , 1983) -see also Fisher and Saldanha (1982), as well as Stahl and Fisher (1988). That work, however, typically assumes that all agents trade at a common price vector, and asks when awareness of disequilibrium will lead that price vector to change.…”

“…With this in mind, say that the allocation mechanism f (ν, i, θ) is multilaterally strategyproof if, for each ν ∈ D, no finite coalition C ⊂ N with (potential) types θ i ∈ Θ can find "manipulative" typesθ i ∈ Θ and net trade vectors t i ∈ R G (i ∈ C) satisfying i∈C t i = 0 as well as f (ν, i,θ i ) + t i ∈ P θ (f (ν, i, θ i )) for all i ∈ C. 41 Considering the case when #C = 1 and so t i = 0, it is obvious that multilateral strategyproofness entails (individual) strategyproofness.…”

Novelty and the bounds of unknowledge in economics

“…an unexplained effect that disrupts the equilibrium state from outside. Second, it is claimed that this kind of economic theorizing is concerned only with the price system's capacity to return to the state of general equilibrium after exogenous shocks of whatever origin (Fisher 1983). …”

The virtues and vices of equilibrium and the future of financial economics

“…This requires the construction of a model for price formation out of equilibrium, a process that is called tatonnement. Such models suggest that there are many situations where prices will fail to converge to equilibrium [31].…”