HEC Research Papers Series,
HEC Paris

Abstract: The fundamentals of an exchange economy, the preferences of individuals, can be identified from the competitive equilibrium correspondence, which associates equilibrium prices of commodities to allocations of endowments; the argument extends to production economies. The essential step is the identification of fundamentals from aggregate demand as a function of the prices of commodities and the distribution of income. The graph of the equilibrium correspondence or of the aggregate demand function satisfy non-trivial restrictions. The identification of fundamentals allows for the prediction of the response of individuals and the economy to changes in the organization of production and exchange, while restrictions on the equilibrium correspondence or the aggregate demand function imply that general theory has testable implications.

Keywords: aggregation; equilibrium; identification; testability

JEL-codes: D10; D50

20 pages, November 15, 1999

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