The Economy's Potential: Duality and Equilibrium

Jacob K Goeree

Papers from arXiv.org

Abstract: I introduce a concave function of allocations and prices -- the economy's potential -- which measures the difference between utilitarian social welfare and its dual. I show that Walrasian equilibria correspond to roots of the potential: allocations maximize weighted utility and prices minimize weighted indirect utility. Walrasian prices are "utility clearing" in the sense that the utilities consumers expect at Walrasian prices are just feasible. I discuss the implications of this simple duality for equilibrium existence, the welfare theorems, and the interpretation of Walrasian prices.

Date: 2022-10
New Economics Papers: this item is included in nep-mic and nep-upt
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