On the Non Uniqueness of Competitive Equilibrium with an Intensive Margin

Felix FitzRoy

Scottish Journal of Political Economy, 1993, vol. 40, issue 3, 283-94

Abstract: Adding an intensive margin, such as working time, to a simple two-factor general equilibrium model of efficient contracts yields at least two perfectly competitive equilibria under simple and intuitive assumptions, such as nonwage labor costs. Longer hours or greater division of labor are associated with lower workers' utility and a higher return on capital in respective equilibria, so distributive conflict appears to be unavoidable even in the choice of competitive equilibrium. The quasi-normative implications of a unique, efficient market allocation that have formed the basis of economic policy recommendations since Adam Smith lose their foundation. Copyright 1993 by Scottish Economic Society.

Date: 1993
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