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Constrained Pseudo-Market Equilibrium

Author

Listed:
  • Federico Echenique
  • Antonio Miralles
  • Jun Zhang

Abstract

We propose a pseudo-market solution to resource allocation problems subject to constraints. Our treatment of constraints is general: including bihierarchical constraints due to considerations of diversity in school choice, or scheduling in course allocation; and other forms of constraints needed to model, for example, the market for roommates, combinatorial assignment problems, and knapsack constraints. Constraints give rise to pecuniary externalities, which are internalized via prices. Agents pay to the extent that their purchases affect the value the of relevant constraints at equilibrium prices. The result is a constrained-efficient market-equilibrium outcome. The outcome is fair to the extent that constraints treat agents symmetrically.

Suggested Citation

  • Federico Echenique & Antonio Miralles & Jun Zhang, 2021. "Constrained Pseudo-Market Equilibrium," American Economic Review, American Economic Association, vol. 111(11), pages 3699-3732, November.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:11:p:3699-3732
    DOI: 10.1257/aer.20201769
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    Citations

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    Cited by:

    1. Th`anh Nguyen & Alexander Teytelboym & Shai Vardi, 2025. "Efficiency, Envy, and Incentives in Combinatorial Assignment," Papers 2509.13198, arXiv.org, revised Oct 2025.
    2. Aygün, Orhan & Turhan, Bertan, 2021. "How to De-reserve Reserves," ISU General Staff Papers 202103100800001123, Iowa State University, Department of Economics.
    3. Aygün, Orhan & Turhan, Bertan, 2021. "How to De-reserve Reserves," ISU General Staff Papers 202104130700001123, Iowa State University, Department of Economics.
    4. Aziz, Haris & Brandl, Florian, 2022. "The vigilant eating rule: A general approach for probabilistic economic design with constraints," Games and Economic Behavior, Elsevier, vol. 135(C), pages 168-187.
    5. Balbuzanov, Ivan, 2022. "Constrained random matching," Journal of Economic Theory, Elsevier, vol. 203(C).
    6. Mark Braverman & Jingyi Liu & Eric Xue & Chenghan Zhou, 2026. "Stronger core results with multidimensional prices," Papers 2603.17862, arXiv.org.
    7. Hafalir, Isa E. & Kojima, Fuhito & Yenmez, M. Bumin, 2025. "Market design with distributional objectives: Efficiency, incentives, and property rights," Journal of Economic Theory, Elsevier, vol. 230(C).
    8. Xiang Han & Onur Kesten & M. Utku Ünver, 2021. "Blood Allocation with Replacement Donors: A Theory of Multi-unit Exchange with Compatibility-based Preferences," Boston College Working Papers in Economics 1038, Boston College Department of Economics.
    9. Miralles, Antonio & Pycia, Marek, 2021. "Foundations of pseudomarkets: Walrasian equilibria for discrete resources," Journal of Economic Theory, Elsevier, vol. 196(C).
    10. Sandomirskiy, Fedor & Ushchev, Philip, 2024. "The geometry of consumer preference aggregation," CEPR Discussion Papers 19100, C.E.P.R. Discussion Papers.
    11. Orhan Aygün & Bertan Turhan, 2023. "How to De-Reserve Reserves: Admissions to Technical Colleges in India," Management Science, INFORMS, vol. 69(10), pages 6147-6164, October.
    12. Echenique, Federico & Miralles, Antonio & Zhang, Jun, 2023. "Balanced equilibrium in pseudo-markets with endowments," Games and Economic Behavior, Elsevier, vol. 141(C), pages 428-443.
    13. Abhimanyu Nag, 2025. "On Sybil Proofness in Competitive Combinatorial Exchanges," Papers 2512.10203, arXiv.org.

    More about this item

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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