A pitchfork bifurcation in the tatonnement process★

Summary . This note extends the example of Gale (1963) by considering the continuous time tatonnement process for a class of two agent, two commodity exchange economies, parametrized by a number μ∈(0,1). We demonstrate that as the parameter passes a threshold value μ^* the unique, globally stable competitive equilibrium loses local stability while two new locally stable equilibria appear. Intuitively, as μ increases the income effect become increasingly more important relative to substitution effect, and eventually overwhelms the latter. As the parameter μ approaches 1, the economy tends to the example considered by Gale, as does the limiting behavior of the tatonnement. Received: February 28, 1996; revised version August 5, 1996