Complementarity and Stability of Equilibrium
American Economic Review
2016
ture concerned with the stability of the competitive equilibrium is the proof by Kenneth Arrow and Leonid Hurwicz (1958) and Arrow, H. D. Block and Hurwicz that, under a tatonnentent mechanism, if all commodities are gross substitutes, then the competitive equilibrium is globally stable. No other theorem of comparable generality has been proved in the stability literature. In this paper, we examine the stability properties of competitive equilibrium positions at which one or more pairs of commodities are gross complements, that is, an increase in the price of good i (other prices being held fixed) leads to a decrease in excess demand for good j, and conversely. The main result of the paper may be formulated as follows.
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