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Decentralization in Non-Convex Economies with Externalities

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Abstract

We consider a pure exchange economy with externalities. Individual preferences are affected by the consumption of all other agents in the economy, and to each agent i is exogenously associated a nonempty set Ai, representing the individuals agent i cares about.We adopt a cooperative approach to equilibrium analysis, allowing each individual to cooperate with others and to form coalitions. Following Vasil’ev (2016), Husseinov (1994) and Graziano (2001), we study a notion of generalized fuzzy core and show that, in the case of non-convex preferences, the set of coalitions can be enlarged in such a way that a core allocation can be supported as an A-equilibrium by some price system. In the second part of the paper, we consider an economy with Arrowian markets for consumption externalities. For an appropriate definition of generalized fuzzy core, we show that a core allocation can be decentralized as an Information equilibrium in terms of personalized and market prices.

Suggested Citation

  • Maria Gabriella Graziano & Marialaura Pesce & Vincenzo Platino, 2023. "Decentralization in Non-Convex Economies with Externalities," CSEF Working Papers 678, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:678
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    1. Graziano, Maria Gabriella & Meo, Claudia & Yannelis, Nicholas C., 2017. "Stable sets for exchange economies with interdependent preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 267-286.
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    More about this item

    Keywords

    Exchange economy; interdependent preferences; markets for externalities; generalized fuzzy core.;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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