Rethinking Arrow--Debreu: A New Framework for Exchange, Time, and Uncertainty

Nizar Riane

Papers from arXiv.org

Abstract: This paper revisits the Arrow-Debreu general equilibrium framework through the lens of effective trade, emphasizing the distinction between theoretical and realizable market interactions. We develop the Effective Trade Model (ETM), where transactions arise from bilateral feasibility rather than aggregate supply and demand desires. Within this framework, we establish the main properties of the price-demand correspondence and prove the existence of Nash equilibria, incorporating production, money, and network topology. The analysis extends to time, uncertainty, and open economies, revealing how loanable funds and exchange rates emerge endogenously. Our results show that equilibrium is shaped by transaction constraints, subjective pricing, and decentralized negotiation, rather than by universal market-clearing conditions, and thereby call into question the foundations of welfare theory. Anticipation is modeled via the conditional mode, capturing bounded rationality and information limitations in contrast to the rational expectations hypothesis. The ETM thus offers a behaviorally and structurally grounded alternative to classical general equilibrium, bridging microfoundations, monetary dynamics, and temporal consistency within a unified framework.

Date: 2025-10, Revised 2025-11
New Economics Papers: this item is included in nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2510.16003

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