On the probability of the competitive equilibrium being globally stable: The C.E.S. example

Abstract

This paper extends an analysis proposed by Hirota (1981) to a class of economies with C.E.S. utility functions that include Scarf (1960)'s second example as a special case and shows by the use of numerical methods that (i) a Walrasian price adjustment mechanism converges to an equilibrium with very high probability and (ii) the weak axiom in revealed preference for market excess demands is satisfied with high probability, but the gross substitutability is rarely satisfied. Also, this paper suggests a possible interpretation of a Walrasian price adjustment that is based on the observations of experiments done by Anderson, Plott, Shimomura and Granat (2000).

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