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Dimensions of Economic Theory and PolicyEssays for Anjan Mukherji$
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Krishnendu Ghosh Dastidar, Hiranya Mukhopadhyay, and Uday Bhanu Sinha

Print publication date: 2011

Print ISBN-13: 9780198073970

Published to Oxford Scholarship Online: September 2012

DOI: 10.1093/acprof:oso/9780198073970.001.0001

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Markovian Equilibria in a Dynamic General Equilibrium Model with Heterogeneous Consumers

Markovian Equilibria in a Dynamic General Equilibrium Model with Heterogeneous Consumers

Chapter:
(p.25) 2 Markovian Equilibria in a Dynamic General Equilibrium Model with Heterogeneous Consumers
Source:
Dimensions of Economic Theory and Policy
Author(s):

Subir K. Chakrabarti

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198073970.003.0002

This chapter proves that there exists a sequence of equilibrium prices in a general equilibrium model in which markets meet successively over several periods. The general equilibrium model is that of a pure exchange economy, whereby each consumer receives an endowment vector of the goods available in the economy at the beginning of each period. The endowment vectors are determined in a random manner in each period as a function of the endowment of the preceding period. Such an equilibrium sequence of prices is known as a Markovian equilibrium. This chapter also analyses the existence of equilibria in which the households use such Markov decision rules to determine the amount of consumption and the purchase of capital assets in each period. Finally, it examines the efficiency and welfare properties of these equilibria.

Keywords:   Markovian equilibrium, equilibrium prices, general equilibrium model, markets, pure exchange economy, endowment vectors, consumption, capital assets, efficiency, welfare

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