Template-Type: ReDIF-Paper 1.0
Author-Name: Martine Quinzii
Author-Name-First: Martine
Author-Name-Last: Quinzii
Author-Name: Michael Magill
Author-Name-First: Michael
Author-Name-Last: Magill
Author-Workplace-Name: Department of Economics, University of California Davis
Title: THE PROBABILITY APPROACH TO GENERAL EQUILIBRIUM WITH PRODUCTION
Abstract: We develop an alternative approach to the general equilibrium analysis of a stochastic
 production economy when firms? choices of investment influence the probability distributions of
 their output. Using a normative approach we derive the criterion that a firm should maximize to
 obtain a Pareto optimal equilibrium: the criterion expresses the firm?s contribution to the expected
 social utility of output, and is not the linear criterion of market value. If firms do not know agents
 utility functions, and are restricted to using the information conveyed by prices then they can
 construct an approximate criterion which leads to a second-best choice of investment which, in
 examples, is found to be close to the first best.
Length: 44
File-URL: https://repec.dss.ucdavis.edu/files/wG3XBDVqSGEU8XX91Y49jt7N/08-3.pdf
File-Format: application/pdf
Number: 80
Classification-JEL: A1, R3
KeyWords: equilibrium, production
Creation-Date: 20071130
Handle: RePEc:cda:wpaper:80