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arXiv · 2210.14437

The Economy's Potential: Duality and Equilibrium

Jacob K Goeree
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Abstract

I introduce a concave function of allocations and prices -- the economy's potential -- which measures the difference between utilitarian social welfare and its dual. I show that Walrasian equilibria correspond to roots of the potential: allocations maximize weighted utility and prices minimize weighted indirect utility. Walrasian prices are "utility clearing" in the sense that the utilities consumers expect at Walrasian prices are just feasible. I discuss the implications of this simple duality for equilibrium existence, the welfare theorems, and the interpretation of Walrasian prices.

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Jacob K Goeree. 2022-10-26. The Economy's Potential: Duality and Equilibrium. https://arxiv.org/abs/2210.14437

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