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Power Method Tâtonnements for Cobb-Douglas Economies

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  • V. Shikhman
  • Yu Nesterov
  • Victor Ginsburgh

Abstract

We consider an economy with consumers maximizing Cobb-Douglas utilities from the algorithmic perspective. It is known that in this case nding equilibrium prices reduces to the eigenvalue problem for a particularly structured stochastic matrix. We show that the power method for solving this eigenvalue problem can be naturally interpreted as a t^atonnement executed by an auctioneer. Its linear rate of convergence is established under the reasonable assumption of pairwise connectivity w.r.t. commodities within submarkets. We show that the pairwise connectivity remains valid under suciently small perturbations of consumers' tastes and endowments. Moreover, the property of pairwise connectivity holds for almost all Cobb-Douglas economies.

Suggested Citation

  • V. Shikhman & Yu Nesterov & Victor Ginsburgh, 2017. "Power Method Tâtonnements for Cobb-Douglas Economies," Working Papers ECARES ECARES 2017-09, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:eca:wpaper:2013/248466
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    Keywords

    exchange economy; Cobb-Douglas utility; tâtonnement; power method; regular economy; stochastic matrix;
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