Generalized Tâtonnement and the Solution of Economic Models

The theoretical literature on tâtonnement processes leads to the conclusion that convergence is guaranteed only urrder fairly restrictive assumptions. Recently, however, large competitive equilibrium models have been successfully solved using algorithms inspired by tâtonnement processes. This paper stresses the idea that a model builder has more freedom to set up the process than a theoretician, for whom only one assignment of prices to excess demand is reasonable; for computational purposes, any assignment is acceptable. The diagonal dominance criterion provides guidelines to set up such an assignment. It is used to show that even intractable examples of global instability can easily be solved.