The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Factor Prices in General Equilibrium

  • Michael Mandler
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2529

Abstract

In general equilibrium models with linear or nonlinear activities, factor prices can be indeterminate and agents will have an incentive to non-competitively manipulate prices even if they are small relative to the market. The indeterminacy cannot occur at generic endowments, but the non-generic endowments where it does occur will arise endogenously as an equilibrium outcome when some factors, such as capital goods, are produced. This endogenous indeterminacy creates a hold-up problem since investors need not earn the rate of return that obtains in an intertemporal competitive equilibrium. Unlike the classical hold-up problem, factor-price indeterminacy is not attributable to there being few agents or bilateral monopoly.

Keywords

Arrow–Debreu model of general-equilibrium Differentiable production function Excess demand and supply Factor prices in general equilibrium Factor-price indeterminacy Hold-up Imperfect competition Intertemporal efficiency Intertemporal equilibrium Leontiev production function Linear activities model Nonmarket institutions Regular economies Sequential-trading equilibrium Uniqueness of equilibrium Walras’s Law 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Michael Mandler
    • 1
  1. 1.