TY - JOUR

T1 - Perturbed utility and general equilibrium analysis

AU - Ma, Wei

N1 - Funding Information:
The author gratefully acknowledges the financial support from ERSA (Economic Research Southern Africa).
Publisher Copyright:
© 2017 Elsevier B.V.

PY - 2017/12

Y1 - 2017/12

N2 - We study general equilibrium theory of complete markets in an otherwise standard economy with each household having an additive perturbed utility function. Since this function represents a type of stochastic choice theory, the equilibrium of the corresponding economy is defined to be a price vector that makes its mean expected demand equal its mean endowment. We begin with a study of the economic meaning of this notion, by showing that at any given price vector, there always exists an economy with deterministic utilities whose mean demand is just the mean expected demand of our economy with additive perturbed utilities. We then show the existence of equilibrium, its Pareto inefficiency, and the upper hemi-continuity of the equilibrium set correspondence. Specializing to the case of regular economies, we finally demonstrate that almost every economy is regular and the equilibrium set correspondence in this regular case is continuous and locally constant.

AB - We study general equilibrium theory of complete markets in an otherwise standard economy with each household having an additive perturbed utility function. Since this function represents a type of stochastic choice theory, the equilibrium of the corresponding economy is defined to be a price vector that makes its mean expected demand equal its mean endowment. We begin with a study of the economic meaning of this notion, by showing that at any given price vector, there always exists an economy with deterministic utilities whose mean demand is just the mean expected demand of our economy with additive perturbed utilities. We then show the existence of equilibrium, its Pareto inefficiency, and the upper hemi-continuity of the equilibrium set correspondence. Specializing to the case of regular economies, we finally demonstrate that almost every economy is regular and the equilibrium set correspondence in this regular case is continuous and locally constant.

KW - General equilibrium

KW - Regular economy

KW - Revealed perturbed utility

KW - Stochastic choice

UR - http://www.scopus.com/inward/record.url?scp=85033592337&partnerID=8YFLogxK

U2 - 10.1016/j.jmateco.2017.09.006

DO - 10.1016/j.jmateco.2017.09.006

M3 - Article

AN - SCOPUS:85033592337

SN - 0304-4068

VL - 73

SP - 122

EP - 131

JO - Journal of Mathematical Economics

JF - Journal of Mathematical Economics

ER -