Economy of Referential Preferences A new mathematical approach for choice theory and general equilibrium.docVIP

Theoretical and Applied Economics Volume XIX (2012), No. 9(574), pp. 65-76 Economy of Referential Preferences A new mathematical approach for choice theory and general equilibrium Teycir GOUCHA University of Tunis goucha@ Abstract. In this paper we introduce basic notions of a new economic model where preference relations on commodities set are represented by a group action on Euclidean space instead of utility function. Conditions that ensure the existence of individual demand function and a general equilibrium in the setting of exchange economy are examined. Keywords: preference relations; group theory; general equilibrium. JEL Codes: C62, D50, D51. REL Code: 9J.  66 Teycir Goucha Introduction The mathematical modern conception of general economic equilibrium (GEE) is provided by Arrow-Debreu model developed from 1950 (Arrow, Debreu, 1954). This model pictures the economy as a collection of m economic agents who make supply and demand decisions over a finite set of l commodities in order to further their own interests. The general equilibrium research program then studies many properties of economy, particularly the price, choices of agents, individual and aggregated demand functions (Balasko, 1998). In a pure exchange model, all agents are consumers, and each of them is l provided with a preference relation represented by a utility function on R and an initial endowment e ∈ R representing his supply offer in the market. Agents l + are assumed to take as given the market prices of goods. In exchange for his supply, each agent tries to choose the consumption bundle which maximizes his utility given his budget constraint. Such bundle represents the individual demand. Aggregated demand of an economy is the sum of all individual ones, and it is clearly a function of price. Equilibrium is by definition the vector