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A Stock-flow Approach to a General Theory of Pricing

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  • Philip Pilkington

Abstract

The paper seeks to lay out a stock-flow-based theoretical framework that provides a foundation for a general theory of pricing. Contemporary marginalist economics is usually based on the assumption that prices are set in line with the value placed on goods by consumers. It does not take into account expectations, or the fact that real goods are often simultaneously assets. Meanwhile, contemporary theories of asset markets are flawed in that they either rely, implicitly or explicitly, on a market equilibrium framework or provide no framework at all. This paper offers a working alternative that relies, not on a market equilibrium framework, but rather on a stock-flow equilibrium framework. In doing so, we lay out a properly general theory of pricing that can be applied to any market—whether financial, real, or a real market that has been financialized—and which does not require that prices inevitably tend toward some prespecified market equilibrium.

Suggested Citation

  • Philip Pilkington, 2013. "A Stock-flow Approach to a General Theory of Pricing," Economics Working Paper Archive wp_781, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_781
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    References listed on IDEAS

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    More about this item

    Keywords

    Pricing; Prices; Asset Pricing; Assets; Financial Assets; Financial Pricing; Disequilibrium Pricing; Equilibrium; Disequilibrium; Market Structure; Teleology;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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