Co-state variables...

[Brad De Long]

>Brad De Long wrote:
>
>>Market prices in a competitive economy ("exchange values") *are* indicators
>>of scarcity: they carry information about the money-metric utility of that
>>particular commodity or resource in its most favorable alternative use.
>
>Why does this remind me of the Baltimore Catechism of my youth?
>
>So let's talk about oil prices. They skyrocketed twice in the 1970s,
>collapsed in the 1980s, recovered a bit in the early 1990s, and are now in
>real terms at or below where they were before the OPEC embargo. Has the
>long-term picture of oil - its physical scarcity, reserves/consumption -
>changed all that much over the last 25 years? Have investments undertaken
>according to these signals been optimal from a social point of view? What
>has changed fundamentally to justify that kind of volatility? Is that
>signal or noise, information or short-term manic-depression in the futures
>pits? If we burn all the oil we have in the ground we will probably die; is
>that reflected in price signals?
>
>Doug

The key weasel words are "competitive economy". ("Externalities" is another
important weasel word.)


:-)

It is at the very least an open question how much is left of the
Arrow-Debreu apparatus once the scope of these weasel words is recognized.
Does the Arrow-Debreu apparatus cover 50% of what's going on? 30%? 10%? And
what happens as the information technology revolution proceeds--and as
things of value ("commodities") lose the properties of rivalry and
excludibility that underlie all the claims that markets are good allocation
mechanisms?

I don't know...

Brad DeLong