Working Paper: CEPR ID: DP14926
Authors: Elizabeth Baldwin; Omer Edhan; Ravi Jagadeesan; Paul Klemperer; Alex Teytelboym
Abstract: We show that, with indivisible goods, the existence of competitive equilibriumfundamentally depends on agents’ substitution effects, not their income effects.Our Equilibrium Existence Duality allows us to transport results on the existence ofcompetitive equilibrium from settings with transferable utility to settings with incomeeffects. One consequence is that net substitutability—which is a strictly weaker conditionthan gross substitutability—is sufficient for the existence of competitive equilibrium.We also extend the “demand types” classification of valuations to settings with incomeeffects and give necessary and sufficient conditions for a pattern of substitution effectsto guarantee the existence of competitive equilibrium.
Keywords: No keywords provided
JEL Codes: C62; D11; D44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| agents' substitution effects (C78) | existence of competitive equilibrium (D50) |
| substitution effects (D11) | transfer of results from transferable utility to income effects (F16) |
| net substitutability (D10) | existence of competitive equilibrium (D50) |
| equilibrium existence duality (C62) | guarantee of competitive equilibria for all endowment allocations (D51) |
| patterns of substitution effects (C34) | determining equilibrium existence (C62) |
| certain auction formats (D44) | facilitate competitive equilibrium outcomes (D50) |