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Equilibria with rationing in an economy with increasing returns

  • Political Science


R CBM R 7626 1979 83 imuiiiNiiN~uuuiinuimiiuiniiiinii subfaculteit der econometrie RESEARCH MEMORANDUM ~estemmin ~ i!. . -''it-T~NBUREAUu:uLi ?'1.I;? :..~C t~i ~r~.T., T T..- ..~t1 ': i i. --Jis i~ HG:~~;i,.;i'i„OL 'TiL~U~~G TILBURG UNIVERSITY DEPARTMENT OF ECONOMICS Postbus 90135 - 5000 LE Tilburg ~ Netherlands ~ ~ ~ ~(o EQUILIBRIA WITH RATIONING IN AN ECONOMY WITH INCREASING RETURNS April 1979. Tilburg University Dept, of Econometrics Postbus 90135 - 5000 LE Tilburg Netherlande. by Claus Weddepohl ~-- ~~~~~~~~b~~~~.t~ Y~1~,.ca ~~y~f - 1 - 1. Introduction.l) In this paper it is shown that the theory on (dis)equilibria with quantity rationing, as developed recently by a.o. Dréze (1975), Benassy (1977) and Barro and Grossman (1976), is appropriate to study economies where production takes place under increasing returns to scale. We con- sider a temporary equilibrium model with quantity rationing. There are three commodities (a single good, labour and money). Consumers sell labour, buy goods and hold money. The producer(s) use(s) labour as the only input to produce goods. Profits are transferred to government and there is a Pixed autonomous demand from government. This model was studied a.o. by Malinvaud (1977), Bóhm (1978 and 1979), Dehez and Gabsze- wicz (1977), Gepts (1977), Hildenbrand and Hildenbrand (1978). A model with a single firm is introduced in section 2 and in section 3 the (temporary) fixed price eguilibria (also called "disequilibria" by some authors) are studied under alternative assumptions on the production function (decreasing returns, constant returns and increasing returns). It has been shown (Malinvaud (1977)) that under decreasing returns to scale there can exist four different types of equilibria (plus inter- mediate cases): Walrasian, Classical, Keynesian and Repressed Inflation. We show that under constant returns Classical equilibrium disappears and that under increasing returns only Keynesian and Repressed Inflation equilibrium

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