Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/27473 
Year of Publication: 
2008
Series/Report no.: 
Economics Discussion Papers No. 2008-37
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
The standard Walrasian equilibrium theory requires that the marginal value product of production factor such as labor is equal across firms and industries. However, productivity dispersion is widely observed in the real economy. Search theory allegedly fills this gap by encompassing apparent disequilibrium phenomena in the neoclassical equilibrium framework. Taking up Lucas and Prescott (1974) as a primary example, we show that the neoclassical search theory cannot explain the observed pattern of productivity dispersion. Non-self-averaging, a concept little known to economists, plays the major role. Empirical observation suggests strongly the presence of disturbing forces which dominate equilibrating forces due to optimizing behavior of economic agents. We must seek a new concept of equilibrium different from the standard Walrasian equilibrium in macroeconomics.
Subjects: 
Equilibrium
search theory
productivity dispersion
power-law
non-self-averaging
JEL: 
J64
E50
D50
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Working Paper

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