Econometrica: Apr, 1977, Volume 45, Issue 3

Non-Walrasian Equilibria

https://doi.org/0012-9682(197704)45:3<573:NE>2.0.CO;2-3
p. 573-590

Hal R. Varian

This paper presents a general equilibrium model which exhibits non-Walrasian equilibria. In Walrasian models economic agents act only on the basis of relative prices. In this model agents take quantity signals into account as well: firms maximize profits subject to a constraint on expected sales, and consumers maximize utility subject to a constraint on realized income. With such a specification it is shown that a non-Walrasian equilibrium will generally exist. Furthermore, the non-Walrasian equilibrium will be a stable equilibrium of an appropriate dynamical system while the Walrasian equilibrium will be unstable.