In Defense of Computing in Economics

Billette de Villemeur

In an outstanding contribution, Jean-Michel Grandmont (1992) argued that increasing behavioral heterogeneity makes aggregate expenditures more independent of prices. He shows that, in the aggregate and under "flat enough" distribution of characteristics, weak axiom of revealed preference, gross substituability, uniqueness and stability of the Walrassian exchange equilibrium would prevail. This note provides a counter-example showing that the strong macroeconomic regularities that he evidenced cannot be considered a general property of exchange markets. A discrete set of "types" is introduced that, for any symmetric distribution of parameters over the space of dispersion, both violates the gross substituability property and generates unstable equilibria. It is argued that the results obtained by Grandmont follow from the continuum of types proposed, rather than from the "flatness" assumption.

Scheduled for Session 4.2 Computation And Economic Theory - I