By R Page Arnot
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Extra info for An Introduction to Political Economy
Two difficulties in this respect arise in Hahn’s model. The second difficulty will be illustrated in the following paragraph. e. to the adoption of a discrete-time model, where goods are distinguished by their dates of sale and these dates are separated by finite time intervals or periods, and where the analysis starts with the situation at date t. If it is assumed, as Hahn does, that production is of the point-input point-output type and requires one period, then the cost of production of a capital good at time t+1 requires the determination of the factor rentals at time t, so the determination of a long-period equilibrium requires the determination of outputs at time t+1 simultaneously with the determination of the composition of the capital endowment at time t.
They only apply to fairy-tale worlds since the assumption can only hold in fairy-tale worlds. Now, in order to demonstrate that the assumption of instantaneous equilibration makes no significant difference, one must be able to compare the results of analyses based on it, with those reached without assuming instantaneous equilibration. 2 The traditional, long-period formulations of general equilibrium theory did nothing more than accept this indisputable truth. The equilibrium had then to determine the Professor Hahn on the 'neo-Ricardian criticism 21 composition of the capital stock endogenously, and the obvious way to determine it was to assume that this composition would adjust so as to guarantee a uniform rate of return on cost of production or supply price (URRSP in the sequel).
E. that the relative price of wheat and barley is the same in 1976 and 1977. But without explanations it is very difficult for the reader not well versed in the logic of longperiod analyses to realize that this assumption is the necessary form taken in Hahn’s model by the traditional assumption of a uniform rate of profit, or of return, on cost of production. Now, when Hahn (p. 365) adds to his model (with given endowments W76, B76) the two equations: Hahn finds a strict overdetermination: he now has 1 more equation than variables (R is an extra variable).
An Introduction to Political Economy by R Page Arnot