Two lemmas that changed general equilibrium theory

Two lemmas that changed general equilibrium theory

2 General Equilibrium Theory

Here we briefly review the general equilibrium theory, which is pretty traditional: preference and the concept of ordinal utility, demand and comparative statics, the definition of Arrow–Debreu equilibrium, Pareto efficiency and welfare theorems, welfare comparison and compensation principle, and incomplete asset markets. As they are standard, they are presented without proofs. For a comprehens...

General equilibrium theory Lecture notes

A general theory of equilibrium behavior

Economists were content with the concept of the Nash equilibrium as game theory’s solution concept until Daskalakis, Goldberg, and Papadimitriou showed that finding a Nash equilibrium is most likely a computationally hard problem, a result that set off a deep scientific crisis. Motivated, in part, by their result, in this paper, we propose a general theory of equilibrium behavior in vector fiel...

A General Equilibrium Theory of Capital Structure∗

We develop a general equilibrium theory of the capital structures of banks and firms. The liquidity services of bank deposits make deposits a “cheaper” source of funding than equity. Banks pass on part of this funding advantage in the form of lower interest rates to firms that borrow from them. Firms and banks choose their capital structures to balance the funding of debt against the risk of co...