Testable implications of general equilibrium theory: a differentiable approach

Is general equilibrium theory empirically testable? Our perspective on this question differs fromthe standard, Sonnenschein–Debreu–Mantel (SDM) viewpoint. While the SDM tradition considersaggregate (excess) demand as a function of prices, we suppose that what is observable is the equilibriumprice vector as a function of the fundamentals of the economy.We apply this perspective to anexchange economy where equilibrium prices and individual endowments are observable.We derivenecessary and sufficient conditions that characterize the equilibrium prices, as functions of initialendowments. Furthermore, we show that, if these conditions are satisfied, then the economy cangenerically be identified. Finally, we show that when only aggregate data are available, observablerestrictions vanish.We conclude that the availability of individual data is essential for the derivationof testable consequences of the general equilibrium construct. DOI: https://doi.org/10.1016/j.jmateco.2003.11.002 Posted at the Zurich Open Repository and Archive, University of Zurich ZORA URL: https://doi.org/10.5167/uzh-62195 Accepted Version Originally published at: Kübler, Felix; Chiappori, Pierre-Andre; Ekeland, I; Polemarchakis, Herakles (2004). Testable implications of general equilibrium theory: A differentiable approach. Journal of Mathematical Economics, 40(12):105-119. DOI: https://doi.org/10.1016/j.jmateco.2003.11.002 Testable implications of general equilibrium theory: a differentiable approach∗† P. A. Chiappori ‡ I. Ekeland § F. Kübler ¶ H. M. Polemarchakis ‖ Working Paper No. 02-10 Department of Economics, Brown University