Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202631 
Authors: 
Year of Publication: 
2019
Series/Report no.: 
Memorandum No. 02/2019
Publisher: 
University of Oslo, Department of Economics, Oslo
Abstract: 
The perfectly competitive market - a hypothetical situation free of market failure - serves as a benchmark for economic theory, providing the basis for the two fundamental welfare theorems. The radical abstractions of this idea makes it hard to grasp its full implications, however. In this essay, I explore the perfectly competitive market using literary fiction. Part I discusses fiction as a tool for economic theory. Part II is a science fiction story about two economists travelling to the perfectly competitive market for their honeymoon. Part III develops main theoretical insights emerging from the story. First, to preclude market failure, complete social isolation must prevail. Second, the requirements of symmetric information and no external effects are extremely hard to reconcile, leading to an impossibility result: if trade is permitted anytime, and deliberate, welfare-relevant learning is feasible, no perfectly competitive market can exist.
Subjects: 
Welfare theorems
narratives
social interaction
symmetric information
complete contracts
JEL: 
A11
A12
B49
D5
D60
D62
D82
Document Type: 
Working Paper

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