Price-dependent consumption externalities and non-existence of equilibria
We construct a concrete example of an exchange economy which admits no equilibria in the presence of price-dependent consumption externalities. In our example, agents form a finite atomless measure space . A reference coalition of each agent t at a price system p is the subset C(t,p)[subset of]T consisting of those agents whose income falls into a certain income range associated with t. The interdependence of the taste of agent t operates through a reference consumption vector [eta], which represents the aggregated effect on t's taste of the various consumption choices made by all agents in C(t,p). We choose , the mean consumption bundle of all agents in C(t,p), where denotes the assignment of a commodity bundle to agent s and where the measure (1/([mu][C(t,p)]))[mu] may be interpreted as the relative frequencies of contact that t makes with other members in C(t,p). In light of the law of large numbers, the above [eta] can be viewed as the consumption trend of the agents in C(t,p), which influences the taste of t.
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200505, University of Kansas, Department of Economics, revised Feb 2005.
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