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A top dog tale with preference complementarities

Author

Listed:
  • Emanuela Randon

    (University of Bologna)

  • Peter Simmons

    (University of York)

Abstract

The emergence of a winner-take-all (top dog) outcome is generally due to political or institutional constraints or to specific technological features which favour the performance of just one individual. In this paper we provide a different explanation for the occurrence of a top-dog equilibrium in exchange economies. We show that once heterogeneous complementarities (i.e. Scarf’s preferences) are analysed with general endowment distributions, a variety of equilibria different from the well-known symmetric outcome with full utilisation of resources can emerge. Specifically, we show that stable corner equilibria with a winner-take-all (top dog) individual arise that are Pareto optima although the remaining individuals are no better off than with zero consumption and resources can be unused. Because of heterogenous complementarities, market mechanisms are weak and cannot overcome the top dog’s power. Voting mechanisms or taxation policies can reduce the top dog’s privileged position.

Suggested Citation

  • Emanuela Randon & Peter Simmons, 2017. "A top dog tale with preference complementarities," Journal of Economics, Springer, vol. 120(1), pages 47-63, January.
    • Handle: RePEc:kap:jeczfn:v:120:y:2017:i:1:d:10.1007_s00712-016-0490-8
    DOI: 10.1007/s00712-016-0490-8
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    References listed on IDEAS

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    Cited by:

    1. Harold Houba & Roland Iwan Luttens & Hans-Peter Weikard, 2017. "Pareto efficiency in the jungle," Review of Economic Design, Springer;Society for Economic Design, vol. 21(3), pages 153-161, September.

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    More about this item

    Keywords

    Exchange economy; Complements; Top dog allocation;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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