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The Transfer Paradox in Welfare Space

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  • Thomas Demuynck
  • Bram De Rock
  • Victor Ginsburgh

Abstract

The transfer paradox describes a situation in which a transfer ofendowments between two agents results in a welfare decrease for therecipient and a welfare increase for the donor. It is known that ina two-agent regular exchange economy with an arbitrary number ofgoods, the transfer paradox occurs only if the price equilibrium isunstable. In this paper, we show that in the space of welfare weights,the set of stable equilibria and the set of no-transfer paradox equilibriacoincide. As a corollary we also obtain that for two agents and anarbitrary number of goods, the index of an equilibrium in price spacecoincides with its index in welfare space.

Suggested Citation

  • Thomas Demuynck & Bram De Rock & Victor Ginsburgh, 2015. "The Transfer Paradox in Welfare Space," Working Papers ECARES ECARES 2015-01, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:eca:wpaper:2013/189873
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    Cited by:

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    2. Queyranne, M. & Wolsey, L.A., 2015. "Modeling poset convex subsets," LIDAM Discussion Papers CORE 2015049, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Wolsey, L.A., 2015. "Uncapacitated Lot-Sizing with Stock Upper Bounds, Stock Fixed Costs, Stock Overloads and Backlogging: A Tight Formulation," LIDAM Discussion Papers CORE 2015041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Belleflamme, Paul & Vergote, Wouter, 2016. "Monopoly price discrimination and privacy: The hidden cost of hiding," Economics Letters, Elsevier, vol. 149(C), pages 141-144.
    5. Ram Sewak Dubey & Minwook Kang, 2019. "Transfer paradox in a stable equilibrium," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 259-269, December.
    6. Decerf, B., 2015. "A new index combining the absolute and relative aspects of income poverty: Theory and application," LIDAM Discussion Papers CORE 2015050, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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    More about this item

    Keywords

    welfare equilibrium; exchange economy; transfer paradox;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • D60 - Microeconomics - - Welfare Economics - - - General

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