Existence of Equilibria in Large Competitive Markets with Bads, Production and Comprehensive Externalities

Robert M. Anderson, Haosui Duanmu, M. Khan and Metin Uyanik

Papers from arXiv.org

Abstract: This paper establishes existence of equilibrium in a measure-theoretic general equilibrium (MGE) model with production, bads, and comprehensive externalities. These features are jointly essential for modeling perfect competition in which emissions of production byproducts impose harm on agents. We show that, when bads and externalities are modeled in an economically natural way, equilibrium exists. This yields the first existence theorem with bads for MGE models, the benchmark for perfect competition, overcoming Hara (2005)'s nonexistence example. The proof uses nonstandard analysis, which provides a systematic technique to extend results for finite to infinite models.

Date: 2025-11, Revised 2026-05
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