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Two polar cases of dynamic stability: voluntary exchange and income redistribution

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Summary.

It is known that when voluntary exchange is permitted at disequilibrium, dynamic stability may fail because of lack of liquidity. In this paper it is shown that when the economy runs out of liquidity dynamic stability can still be restored by means of a planning procedure of redistributing personal incomes.

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Authors and Affiliations

  1. School of Economics, University of Cape Town, 7700, Rondebosch, SOUTH AFRICA

    Haim Abraham

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  1. Haim Abraham
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Correspondence to Haim Abraham.

Additional information

Received: 30 May 2003, Revised: 20 January 2005,

JEL Classification Numbers:

D01, D50.

I wish to thank a referee for helpful comments.

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Abraham, H. Two polar cases of dynamic stability: voluntary exchange and income redistribution. Economic Theory 28, 213–219 (2006). https://doi.org/10.1007/s00199-005-0608-7

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  • DOI: https://doi.org/10.1007/s00199-005-0608-7

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