Existence and optimality of social equilibrium with many convex and nonconvex firms

Antonio Villar

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This paper analyzes the existence of efficient equilibrium allocations in an economy with many convex and non-convex firms. A Social Equilibrium is defined as a price vector and an allocation satisfying the following properties: a) Consumers satisfy their preferences, subject to their budget constraints; b,l) Convex firms maximize profits at given prices; b,2) Non-convex firms maximize profits at given prices, subject to an input constraint; and c) All markets clear. We show that, under suitable assumptions, a Pareto Optimal Social Equilibrium does exist. This result can be interpreted as defining a regulation policy yielding efficient outcomes, which consists of imposing constraints on the availability of some inputs for the non-convex firms, and let them act in the market as (constrained) profit maximizers.

Keywords: Increasing returns; optimal allocations; social equilibrium (search for similar items in EconPapers)
Pages: 28 pages
Date: 1994-07
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:1994-12

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