General equilibrium analysis under non-zero transaction costs

Author: Xie Zhiping
Publisher:
Publish Date: 2006-12-01
Features: The author of this book employs rigorous mathematical analysis to examine general equilibrium under nonzero transaction costs. The logical starting point of this work is that the fixed component of transaction costs does not necessarily equal zero, there are production sectors, and money serves as the medium of exchange. The following innovations and insights are noteworthy: First, for some specific assumptions, the author argues that if they are clearly contrary to real economic activities, they can be theoretically reconstructed as a foundation, and the related conclusions derived from this may be highly valuable. Second, the author utilizes rigorous mathematical analysis methods. Third, the author points out that under positive transaction costs, if the market experiences discontinuous excess demand from individuals, leading to synchronized decision-making by a non-infinitesimal proportion of traders, the market cannot clear itself. Fourth, in the latter part, the author specifically analyzes the welfare effects when transaction costs are greater than zero, arguing that the existence of transaction costs undermines the premises and foundations of welfare economics and its Second Fundamental Theorem, and significantly impacts social welfare from three aspects: consumer endowments, transaction expenditures, and income. Subsequently, the article proposes a method to measure welfare losses at the macro level, a persistent challenge in economic analysis, and the author makes an important and enlightening attempt; the work also theoretically demonstrates that the impact of transaction costs on economic efficiency and social welfare exhibits a magnifying effect.