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Consistent solutions in exchange economies: A characterization of the price mechanism

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  • Nir Dagan

Abstract

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," Economics Working Papers 141, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:141
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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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