Abstract
In this paper one considers an economy in which individuals can transact at “false” prices. When they do they encounter quantity constraints, this in turn, as Arrow has noted, stops them acting as perfect competitors. In particular they must form an hypothesis concerning a possibility of affecting their quantity constraints by a change of price. This hypothesis is called a conjecture. A set of prices and quantity signals at which desired trades are achieved and no prices change is advantageous under the conjecture is a conjectural equilibrium. Economies can have conjectural equilibria even when they have a Walrasian one. Naturally one wants a theory of conjecture formation. In what follows it is shown, mainly by examples, that it is not fruitful to look for rational conjectural equilibria (defined in the sequel). One concludes that at best one could hope that agents conjecture Marshallian schedules.
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References
Arrow, K. J. & Hahn, F. H.: General competitive analysis. Holden Day, 1971.
Hahn, F. H.: On non-Walrasian equilibria. Review of Economic Studies (forthcoming).
Negishi, Y.: Monopolistic competition and general equilibrium. Review of Economic Studies, 1968.
Radner, R.: Competitive equilibrium under uncertainty. Econometrica, 1968.
Rothschild, M.: A two-armed-bandit theory of market pricing. Journal of Economic Theory, 1974.
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© 1978 The Scandinavian Journal of Economics
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Hahn, F.H. (1978). Exercises in Conjectural Equilibria. In: Strøm, S., Werin, L. (eds) Topics in Disequilibrium Economics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-03917-3_4
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DOI: https://doi.org/10.1007/978-1-349-03917-3_4
Publisher Name: Palgrave Macmillan, London
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