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Abstract

We consider the problem of fairly allocating a bundle of infinitely divisible commodities among a group of agents with "classical" preferences. We propose to measure an agent's "sacrifice" at an allocation by the size of the set of feasible bundles that the agent prefers to her consumption. As a solution, we select the allocations at which sacrifices are equal across agents and this common sacrifice is minimal. We then turn to the manipulability of this solution. In the tradition of Hurwicz (1972, Decision and Organization, U. Minnesota Press), we identify the equilibrium allocations of the manipulation game associated with this solution when all commodities are normal: (i) for each preference profile, each equal-division constrained Walrasian allocation is an equilibrium allocation; (ii) conversely, each equilibrium allocation is equal-division constrained Walrasian. (iii) Furthermore, we show that if normality of goods is dropped, then equilibrium allocations may not be efficient.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_552.pdf
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Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 552.

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Length: 30 pages
Date of creation: Aug 2009
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Handle: RePEc:roc:rocher:552

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Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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Keywords: equal-sacrifice rule; manipulation game; equal-division Walrasian solution.;

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