ABSTRACT
A set of key axioms of “hard core” neoclassical economic theory (Eggertsson, 1990, pp. 3–32) suggest that there is a solid link between the model of rational choice and the existence of a unique, stable, and Pareto-efficient market equilibrium. The market “clears” and reaches equilibrium as a result of individual choices by economic agents who intend to maximize their utility. Sub-optimality at both the micro (if economic agents fail to maximize the utility) and macro (the existence of multiple equilibria and market failures 1 ) levels has always puzzled economists.
