On the Generic Occurrence of Price Regulations

P. Jean-Jacques Herings

No 1996008, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: There exists an extensive literature on economies with price rigidities, where some constraints on the set of admissible price systems are exogenously given. In this paper a model of a political economic system is described where the price rigidities are endogenously chosen by political candidates. The economic system is modelled by a general equilibrium model and the political system as a game between political candidates who maximize political supports. Conditions for the existence of a political economic equilibrium and characterizations of this equilibrium are given. Moreover, it is shown that, generically, political candidates will not choose price regulations leading to a Walrasian equilibrium, but instead will impose price regulations upon the economic system which exclude all Walrasian equilibria and therefore lead to rationing of consumers.

Pages: 29
Date: 1996-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:1996008

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