The Firm and the Price Formation Process: On the Presence and the Ramifications of a "Logical Gap" in the Neoclassical Framework.

This paper represents an attempt to follow-up on Kenneth Arrow's long-neglected identification of a ‘logical gap’ in the perfectly competitive foundation of the neoclassical framework. Attention is initially focused on establishing the fact that this logical gap exists and that it leaves the orthodox paradigm without an endogenous account of the manner in prices are determined. The presence of this logical gap implies, in other words, that neoclassical economics fails to provide our discipline with a theory of value. Given this fact, the second, considerably longer part of this paper establishes the broad outlines of a framework in which this logical gap is not present and that is capable, therefore, of providing our discipline with a legitimate theory of value. While prior efforts to develop an explicit account of the manner in which prices are determined provide crucial guidance in this regard, these efforts are extended in terms that address certain shortcomings and traditional sources of resistance. [ABSTRACT FROM AUTHOR]