Towards General Equilibrium

Abstract

Although we have discussed in some detail the interaction of economic decision from the point of view both of conflicts and coalitions our modelling of this has so far only been an extension of the basic single-sector decision models. We have seen both how other sectors’ decisions act as exogenous influences on one sector’s decisions and how the latter are modified by feedbacks generated endogenously in the former. We have not, however, made any attempt to add the various sectors together to obtain a picture of the workings of the entire spatial economy. General equilibrium modelling, the simultaneous achievement of equilibrium situations in all sectors of a given economy is, it must be made clear at the outset, both naïve and complex. It is naïve because of the simplifications which must obviously be made to render even the smallest economy a tractable problem. It is complex because of the number of relationships which exist in such an economy. However, general equilibrium is the obvious logical extension of the relationships we are considering, since it is only by considering an economy in general equilibrium that we can draw certain important inferences about its behaviour and the likely responses of the various economic agents within it. In this chapter we shall elaborate on the general nature of such an approach, in Chapter 7 we shall consider some further modelling developments and the drawbacks and limitations of the approach with indications of possible alternatives.