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Consistent Solutions in Exchange Economies: a Characterization of the Price Mechanism



We characterize the Walrasian allocations correspondence by means of four axioms: consistency, replica invariance, individual rationality and Pareto optimality. It is shown that for any given class of exchange economies any solution that satisfies the axioms is a selection from the Walrasian allocations with slack. Preferences are assumed to be smooth, but may be satiated and non-convex. A class of economies is defined as all economies whose agents' preferences belong to an arbitrary family (finite or infinite) of types. The result can be modified to characterize equal budget Walrasian allocations with slack by replacing individual rationality with individual rationality from equal division. The results are valid also for classes of economies in which core--Walras equivalence does not hold.

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  • Nir Dagan, 1995. "Consistent Solutions in Exchange Economies: a Characterization of the Price Mechanism," Economic theory and game theory 011, Nir Dagan.
  • Handle: RePEc:nid:ndagan:011

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    1. Bettina Klaus & Hans Peters & Ton Storcken, 1997. "Reallocation of an infinitely divisible good," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(2), pages 305-333.
    2. Thomson William, 1994. "Consistent Solutions to the Problem of Fair Division When Preferences Are Single-Peaked," Journal of Economic Theory, Elsevier, vol. 63(2), pages 219-245, August.
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    4. van den Nouweland, A. & Peleg, B. & Tijs, S., 1996. "Axiomatic characterizations of the Walras correspondence for generalized economies," Journal of Mathematical Economics, Elsevier, vol. 25(3), pages 355-372.
    5. Peleg, B, 1986. "On the Reduced Game Property and Its Converse," International Journal of Game Theory, Springer;Game Theory Society, vol. 15(3), pages 187-200.
    6. Peleg, Bezalel, 1985. "An axiomatization of the core of cooperative games without side payments," Journal of Mathematical Economics, Elsevier, vol. 14(2), pages 203-214, April.
    7. Dagan, Nir, 1996. "A Note on Thomson's Characterizations of the Uniform Rule," Journal of Economic Theory, Elsevier, vol. 69(1), pages 255-261, April.
    8. Thomson, William & Zhou, Lin, 1993. "Consistent Solutions in Atomless Economies," Econometrica, Econometric Society, vol. 61(3), pages 575-587, May.
    9. Thomson, William, 1988. "A study of choice correspondences in economies with a variable number of agents," Journal of Economic Theory, Elsevier, vol. 46(2), pages 237-254, December.
    10. Lensberg, Terje, 1988. "Stability and the Nash solution," Journal of Economic Theory, Elsevier, vol. 45(2), pages 330-341, August.
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    Cited by:

    1. Sönmez, Tayfun & Ünver, M. Utku, 2010. "House allocation with existing tenants: A characterization," Games and Economic Behavior, Elsevier, vol. 69(2), pages 425-445, July.
    2. Nir Dagan, 1996. "Consistency and the Walrasian allocations correspondence," Economics Working Papers 151, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Thomson, William, 2011. "Chapter Twenty-One - Fair Allocation Rules," Handbook of Social Choice and Welfare,in: K. J. Arrow & A. K. Sen & K. Suzumura (ed.), Handbook of Social Choice and Welfare, edition 1, volume 2, chapter 21, pages 393-506 Elsevier.

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