chapter  4
17 Pages

Axiomatic analysis of equilibrium states

One common avenue for criticism of neoclassical economics is to analyze the assumptions required for a state of equilibrium. Unlike the neoclassical maximization hypothesis which is deliberately put beyond question in every neoclassical model, the assumption of equilibrium is usually open to question.1 Some models are designed to explain phenomena as equilibrium phenomena (such as prices or resource allocations). Models which offer equilibrium explanations must at least provide logically possible equilibrium states. Clearly, such equilibrium models are open to question and thus can be critically examined to determine whether a state of equilibrium is consistent with the other behavioural assumptions made. There are some equilibrium models which are not easily criticized such as those which put the existence of equilibria beyond question (e.g. those which involve the Coase theorem or unobserved transaction costs). These necessary-equilibrium models are most often used to explain away alleged disequilibrium phenomena (e.g. involuntary unemployment or socially unacceptable levels of pollution).