On Equilibria of Bid-Ask Markets

Among his many contributions to economic theory, Kenneth Arrow’s studies of general equilibrium are especially important to the continuing development of the fine structure of market-mediated allocation processes. The paradigm of efficient decentralized allocation via market clearing prices developed from the Walrasian model in the long line of research given its greatest impetus by Arrow, Gerard Debreu, and their colleagues. The demonstration that ‘perfectly’ competitive complete markets, characterized by universal price-taking behaviour, can in principle (absent non-convexities, and so on) attain an efficient allocation set the cornerstone of the theory of markets. By establishing the standard against which further studies of imperfectly competitive and incomplete markets are compared, this accomplishment continues to shape the agenda of continuing research on competitive processes.