The Logic of the Fix-Price Method

Abstract

Recent works on the microeconomic foundations of macroeconomics (Barro & Grossman, Benassy, Malinvaud, Younès) make use of the Hicksian fix-price method. In these studies, prices are assumed to be temporarily fixed in the short run, and adjustments take place through quantity rationing. A basic assumption of these models is that only agents on the "long side" of a market are rationed (e.g. buyers when there is an excess demand). This paper surveys some recent contributions to the study of the logic of this assumption. It is argued in particular that, although these models are designed to describe "disequilibrium" states where there is an excess demand or supply on some markets, their logic appears to involve some kind of recontracting process at fixed prices among traders.