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A top dog tale with preference complementarities

Emanuela Randon () and Peter Simmons
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Emanuela Randon: University of Bologna

Journal of Economics, 2017, vol. 120, issue 1, 47-63

Abstract: Abstract The emergence of a winner-take-all (top dog) outcome is generally due to political or institutional constraints or to specific technological features which favour the performance of just one individual. In this paper we provide a different explanation for the occurrence of a top-dog equilibrium in exchange economies. We show that once heterogeneous complementarities (i.e. Scarf’s preferences) are analysed with general endowment distributions, a variety of equilibria different from the well-known symmetric outcome with full utilisation of resources can emerge. Specifically, we show that stable corner equilibria with a winner-take-all (top dog) individual arise that are Pareto optima although the remaining individuals are no better off than with zero consumption and resources can be unused. Because of heterogenous complementarities, market mechanisms are weak and cannot overcome the top dog’s power. Voting mechanisms or taxation policies can reduce the top dog’s privileged position.

Keywords: Exchange economy; Complements; Top dog allocation (search for similar items in EconPapers)
JEL-codes: D50 D61 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:kap:jeczfn:v:120:y:2017:i:1:d:10.1007_s00712-016-0490-8