Date of Submission


Date of Award


Institute Name (Publisher)

Indian Statistical Institute

Document Type

Doctoral Thesis

Degree Name

Doctor of Philosophy

Subject Name



Economic Research Unit (ERU-Kolkata)


Dasgupta, Dipankar (ERU-Kolkata; ISI)

Abstract (Summary of the Work)

The theory of Walrasian equilibrium yields a set of prices at which the aggregate competitive demand for each commodity equals its aggregate competitive supply. Two important issues arise in this context. The first is concerned with discovering laws which guide the behaviour of the many economic variables, especially prices, when the analyst m is out of equilibrium. Walras (1900) tackled this problem by providing an algorithm (or the ståtenement scheme") which can be viewed as an auctioneer quoting different peices for the various goods an. adjusting them according t the sigus of the resulting aggregate excess demands. This is the well-kaown probleen of the staisility of a Walrasian equilibrium. The otber issue revolves around the function of an auctioncer as a clearing house for cotnenodities. Once the equilibrium peices are found, all ageuts are assumed to deposit their initial endowments with the auctioncer, who in turn reallocates them accoeding to the pattern of excess demands.The removal of an auctioncer exposes two important weaknesses of the Walrasian system. First, it lacks the institutional scaffolding required to carry out desired exchanges even when prices are at equilitbrium. Secundly, there is no guarantee that prices will glide smoothly to their equilithrium valses without the guidance of the auctioneer. The thesis is eoneerned ex-lusively with these two lacunas in the Walrasian model. In particular, the initial half of our work is geared towards finding institut ions for allocating commodities wben the system is in equilibrium. The other haif is concersi with the issue of finding an appropriate alocation itseif when the auctionrer is not present to adjust prices aud the latter have somebow gut st uck at disequilibrium krvels. This justifies the main title of the thesis aS well as ins subtitles.The next tw sections (1.2 nd 1.3) peovide a b faver.ew af the con- cerned issues1.2 Allocation in EquilibriumLet us begin with the problem of allocation of commodities in equilibrium. In this context we assume that prices have somehow settled at the equilibrium level. This in turn ensures that aggregate excess demand for each commodity equals zero and in this sense everybody's desired allocation is at least feasible. However, even in such a situation, a lack of mutual cuiteidetce of wants at the individual level ereates serinmas obstacles in the way of realining the equilibrium allocation through a decentralized process of trade. 1.21 The role of money as a modium of exchangeWhen trades take place in a decentralized fashion, (ie. in the absence of an auctioneer) it is likely that they would be restricted to those between pairs of agents. Afore importantly such pairwise meetings of a particular agent with different traders need to be separuted in t me. Ia the alsenee of a centralized agency, each agent going through such sequentinl bilateral trades will naturally insist on the val.e of his incomings to be at least as large as the value of his outguings. la other woeds, trades should be biluterally 6-lunced in value terms after cach meeting or eqnivalently maintain quid pro qwo. Howewer, in the absence of perfect mutual colncidence of wants between the agents, this quid pro quo may have to be maintained by transferring a gond to the creditor foe which he has no (Walrasian) excess denand. The need kar a mediam of exchange in a cumpetitive set-up ena be best appreciated against this background, for as soon as an agent accepes a good for which be does not have execes demand, it takes the form of a medium of exchange.


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