Existence of a competitive equilibrium when all goods are indivisible

Michael Florig and Jorge Rivera

Journal of Mathematical Economics, 2017, vol. 72, issue C, 145-153

Abstract: This paper investigates an economy where all consumption goods are indivisible at the individual level, but perfectly divisible at the overall level of the economy. In order to facilitate trading of goods, we introduce a perfectly divisible parameter that does not enter into consumer preferences — fiat money. When consumption goods are indivisible, a Walras equilibrium does not necessarily exist. We introduce the rationing equilibrium concept and prove its existence. Unlike the standard Arrow–Debreu model, fiat money can always have a strictly positive price at the rationing equilibrium. In our set up, if the initial endowment of fiat money is dispersed, then a rationing equilibrium is a Walras equilibrium. This result implies the existence of a dividend equilibrium or a Walras equilibrium with slack.

Keywords: Competitive equilibrium; Indivisible goods (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:72:y:2017:i:c:p:145-153

DOI: 10.1016/j.jmateco.2017.06.004

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