Arrow-Debreu Model versus Kornai-critique

Abstract

More than forty-five years have passed since János Kornai published his book entitled „Anti-equilibrium” (Kornai, 1971). This was the first scientific work in the international literature that provided a comprehensive critique on the general equilibrium theory as described in Debreu’s theory of price and the Arrow-Debreu model and opened a debate on the validity of the mainstream neoclassical model. Frank Hahn’s response was the most severe to the critique. Kornai, insisting on his original critique, reflected on Hahn’s response in his own autobiography (Kornai, 2008). In this paper, we review the Arrow-Debreu model and its background, reconstruct the major points of the Kornai vs. Hahn debate, including its historical preliminaries, and examine the validity of criticisms and rebuttals. As we will see, the recent theories have not always verified Hahn’s objections and some Nobel Prize lectures in economics recently showed that both the neoclassical theory and the general equilibrium theory in the sense of Arrow-Debreu model was wrong on either empirical or theoretical grounds (Offer and Söderberg, 2016). We also show Kornai’s newest results towards an alternative model of detailed resource allocation, DRSE contrary to the general equilibrium (Kornai, 2014).

Keywords

• general equilibrium theory
• arrow-debreu model
• anti-equilibrium
• kornai vs. hahn debate
• walrasian equilibrium
• kornai’s new equilibrium states
• ex post and ex ante models
• drse model
• ergodic dynamic system