I don't do micro. Can somebody please find me some simple accessible link that explains "the core" and its relation to competitive equilibrium? Thanks. This one (pdf) looks good but has got too much math for me to understand. [Update: here's Aumann (pdf). First couple of pages are readable. Thanks notsneaky.]
Suppose you have an economic model with (say) two types of people. Let's call them "workers" and "capitalists". OK.
Now suppose you tell me that a new technology comes along that both reduces workers' wages and reduces capitalists' rate of profit.
"Stop right there!" I will reply, "If it reduces both workers' wages and capitalists' rate of profit, why would workers and capitalists ever adopt that new technology? And if they did stupidly adopt it, why wouldn't a sub-group of workers and capitalists split off from the main group, go back to the old technology, and earn higher wages and higher rate of profit?"
And you need to be able to give me a damn' good answer to that question. Otherwise what you are saying about that new technology doesn't make sense.
Your answer might be "Ooops! I forgot to include land in my model! Workers and capitalists also need land to produce goods, and the new technology creates much higher land rents, and if the sub-group of workers and capitalists tried to pay landlords enough to persuade some of them to leave the main group and join their sub-group, they would find their wages or profits would be even lower going back to the old technology than if they stuck with the new."
It was never my cup of tea, and I can only vaguely remember bits of it from grad skool, but learning General Equilibrium theory really does have some benefits.
And why the hell aren't General Equilibrium theorists all over this one? (Or did I miss it?) If they can't say stuff like this, and a lot better than I can, why do they even exist?
[This could be read as a response to Richard Serlin's post, but Richard is not alone. This is a general equilibrium question, and partial equilibrium reasoning won't work.]