Budget constraint of a firm and economic theory (*)

M. Kiyoshi Kuga
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M. Kiyoshi Kuga: Institute of Social and Economic Research, Osaka University, 6-1, Mihogaoka, Ibaraki, Osaka 567, JAPAN

Economic Theory, 1996, vol. 8, issue 1, 137-153

Abstract: Firms in reality are subject to budget constraints which general equilibrium theorists have paid little attention. Using Morishima (1950, 1992) model, this paper deals with firms that are subject to budgets pertaining to sales and investment decisions, and proves the existence of a general equilibrium. We show that an economy with firms subject to budgets does not necessarily satisfy the efficiency proposition, and clarify how the total profit maximum condition in the Arrow- Debreu (1954) type economy ensures an "efficiency" in a limited dynamic sense.

Date: 1996
Note: Received: February 4, 1994; revised version July 11, 1994
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