Abstract
In general equilibrium models with linear or nonlinear activities, factor prices can be indeterminate and agents will have an incentive to non-competitively manipulate prices even if they are small relative to the market. The indeterminacy cannot occur at generic endowments, but the non-generic endowments where it does occur will arise endogenously as an equilibrium outcome when some factors, such as capital goods, are produced. This endogenous indeterminacy creates a hold-up problem since investors need not earn the rate of return that obtains in an intertemporal competitive equilibrium. Unlike the classical hold-up problem, factor-price indeterminacy is not attributable to there being few agents or bilateral monopoly.
This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume
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Mandler, M. (2008). Factor Prices in General Equilibrium. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_2529-1
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DOI: https://doi.org/10.1057/978-1-349-95121-5_2529-1
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