Foley, D. K.

he definition of Walrasian competitive equilibrium, on which the Fundamental Existence and Welfare Theorems rest, assumes that all trading in decentralized exchange economies takes place at the final equilibrium prices, which further implies that at equilibrium prices the value of each agent's equilibrium commodity bundle is equal to the value of her endowment, and equal treatment of agents with the same preferences, technology and endowment. The logic of the theorems supports the conclusion that in competitive economies prices, the allocation of commodities, and the distribution of income and material welfare are determined by the preferences, technology, and endowments of the agents. In real-world markets, however, agents can discover equilibrium prices only by making mutually advantageous transactions at disequilibrium prices. Any sequence of such transactions leads stably to an exchange equilibrium at which the offer prices oral! agents are close to each other, and which exhausts all private opportunities to realize economic surpluses. The exchange equilibrium set, however, is in general a continuum, and the exact equilibrium reached depends on the path of transactions. In general, exchange equilibria do not treat agents with the same preferences and endowments equally, and the exchange equilibrium allocation of commodities does not conserve the values of individual agent endowments. Existence and stability of exchange equilibrium are transparent consequences of the logic of voluntary exchange, but because of transaction path dependence, equilibrium prices, allocations of commodities, and the distribution of wealth and economic welfare are not determined by agents' preferences and endowments.