 Does Imperfect Competition Imply Pareto Inefficiency?Lars Haagen Pedersen and
Peter Stephensen
No 90-07, Discussion Papers from University of Copenhagen. Department of Economics Abstract: In this paper we consider a model where agents optimize intertemporally and in which there is imperfect competition in the market for consumer goods. The labor market is one of perfect competition and there is exogenous labor supply. In other factor markets there may or may not be imperfect competition. Using CES utility and investment technology functions, we are able to aggregate the model to get a simple dynamic system. We show that if imperfect competition only appears in the market for consumer goods then the equilibria are Pareto efficient. However, if imperfect competition prevails in the factor markets as well, then the equilibria will be Pareto inefficient. In this case the degree of inefficiency depends on the size of the elasticity of substitution in the investment technology function. As this elasticity approaches infinity the equilibria becomes Pareto efficient. In this way the result is a generalization of the wellknown Abel & Blanchard result (Econometrica, 1983) that in a model with perfect competition and intertemporally optimizing agents the decentralized equilibria are Pareto efficient. Pages: 35 pages There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9007 Access Statistics for this paper More papers in Discussion Papers from University of Copenhagen. Department of Economics Oester Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC. |
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