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Smallness of a commodity and partial equilibrium analysis

Hayashi, T. (2013) Smallness of a commodity and partial equilibrium analysis. Journal of Economic Theory, 148 (1). pp. 279-305. ISSN 0022-0531 (doi:10.1016/j.jet.2012.12.017)

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Abstract

Partial equilibrium analysis has a conceptual dilemma that its object should be negligibly small in order to be free from income effect but then the consumer does not care for it and the notion of willingness to pay for it does not make sense. In the setting of a continuum of commodities, we propose a limiting procedure which transforms the general many-commodity framework into a partial single-commodity framework. In the limit, willingness to pay for a commodity is established as a density notion and it is shown to be free from income effect. This pins down an exact relationship between general equilibrium analysis and partial equilibrium analysis.

Item Type:Article
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Hayashi, Prof Takashi
Authors: Hayashi, T.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Economic Theory
Publisher:Elsevier
ISSN:0022-0531
ISSN (Online):1095-7235
Published Online:13 December 2013
Copyright Holders:Copyright © 2012 Elsevier Inc.
First Published:First published in Journal of Economic Theory 148(1):279-305
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

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