(Near-)Substitute Preferences and Equilibria with Indivisibilities

Thanh Nguyen and Rakesh Vohra

Journal of Political Economy, 2024, vol. 132, issue 12, 4122 - 4154

Abstract: An obstacle to using market mechanisms to allocate indivisible goods is the lack of competitive equilibria (CEs). Arrow and Hahn introduced social-approximate equilibria: price vectors with “small” excess demands. We define preferences called Δ-substitutes, where social-approximate equilibria exist with good-by-good excess demand bounded by 2(Δ−1), independent of economy size. For Δ=1, CEs exist even with income effects. A Δ greater than 1 allows for richer substitutability and complementarity patterns, broadening the scope for market mechanisms to allocate indivisible goods.

Date: 2024
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