The Equilibrium Existence Duality

We show that with indivisible goods, the existence of competitive equilibrium fundamentally depends on agents’ substitution effects, not their income effects. Our equilibrium existence duality allows us to transport results on the existence of competitive equilibrium from settings with transferable...

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Bibliographic Details
Published in:The Journal of political economy 2023-06, Vol.131 (6), p.1440-1476
Main Authors: Baldwin, Elizabeth, Jagadeesan, Ravi, Klemperer, Paul, Teytelboym, Alexander
Format: Article
Language:English
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Summary:We show that with indivisible goods, the existence of competitive equilibrium fundamentally depends on agents’ substitution effects, not their income effects. Our equilibrium existence duality allows us to transport results on the existence of competitive equilibrium from settings with transferable utility to settings with income effects. One consequence is that net substitutability—which is a strictly weaker condition than gross substitutability—is sufficient for the existence of competitive equilibrium. Further applications give new existence results beyond the case of (net) substitutes. Our results have implications for auction design.
ISSN:0022-3808
1537-534X
DOI:10.1086/722935