THE HAYEK HYPOTHESIS AND LONG-RUN COMPETITIVE EQUILIBRIUM: AN EXPERIMENTAL INVESTIGATION

We report on an experiment investigating whether the Hayek hypothesis ( Smith, 1982) extends to the long-run setting. We consider two environments; one with a production technology having a U-shaped long-run average cost curve and a single competitive equilibrium, and another with a constant long-run average cost curve. We present alternative efficient production plans as a menu of fixed and marginal cost pairs. In both environments, we observe convergence to long-run competitive equilibrium prices and quantities typically within six long-run decision horizons.