Francis Ysidro Edgeworth - Contributions To Economics

Contributions To Economics

In Mathematical Psychics (1881), his most famous and original book, he criticised Jevons's theory of barter exchange, showing that under a system of "recontracting" there will be, in fact, many solutions, an "indeterminacy of contract". Edgeworth's "range of final settlements" was later resurrected by Martin Shubik (1959) as the game-theoretic concept of "the core".

• Edgeworth's conjecture

As the number of agents in an economy increases, the degree of indeterminacy is reduced. In the limit case of an infinite number of agents (perfect competition), contract becomes fully determinate and identical to the 'equilibrium' of economists. The only way of resolving this indeterminacy of contract would be to appeal to the utilitarian principle of maximizing the sum of the utilities of traders over the range of final settlements. Incidentally, it was in this 1881 book that Edgeworth introduced into economics the generalized utility function, U (x, y, z, ...), and drew the first 'indifference curve'.

• International trade

He was the first one to use offer curves and community indifference curves to illustrate its main propositions, including the "optimal tariff".

• Taxation paradox

Taxation of a good may actually result in a decrease in price.

He set the utilitarian foundations for highly progressive taxation, arguing that the optimal distribution of taxes should be such that 'the marginal disutility incurred by each taxpayer should be the same' (Edgeworth, 1897).

• Monopoly pricing

In 1897, in an article on monopoly pricing, Edgeworth criticized Cournot's exact solution to the duopoly problem with quantity adjustments as well as Bertrand's "instantly competitive" result in a duopoly model with price adjustment. At the same time, Edgeworth showed how price competition between two firms with capacity constraints and/or rising marginal cost curves resulted in indeterminacy. This gave rise to the Bertrand-Edgeworth model of oligopoly.

• Marginal productivity theory

Edgeworth criticized the marginal productivity theory in several articles (1904, 1911), and tried to refine the neo-classical theory of distribution on a more solid basis. Although his work in questions of war finance during World War I was original, they were a bit too theoretical and did not achieve the practical influence he had hoped.

• Edgeworth's limit theorem

Edgeworth's limit theorem relates to equilibrium of supply and demand in a free market. See Edgeworth's limit theorem.

Though Edgeworth's economic ideas were original and in depth, his contemporaries frequently complained of his manner of expression for lack of clarity. He was prone to verbosity and coining obscure words without providing definition for the reader.