Regulation of Prices, the Generic Case?

Abstract

In Chapter 8 a model of the political economic system has been given such that the price regulations imposed on the economic system resulted endogenously. Moreover, in Section 8.5 an example has been given where the price regulations are chosen in such a way by the political candidates that the Walrasian equilibrium price system is excluded. However, it is not clear whether this is the typical case. Moreover, it is clear that it is possible to construct examples where both political candidates propose price regulations such that a Walrasian equilibrium results. An obvious example would be to choose Pareto efficient initial endowments. Then any price regulation, so also an imposition of the Walrasian equilibrium price system, would give the initial endowments as final allocation. So, both political candidates proposing the Walrasian equilibrium price system constitutes a political economic equilibrium in this case. It is not too difficult to construct other examples where the unique political economic equilibrium is given by both political candidates proposing the Walrasian equilibrium price system.