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The Equilibrium Existence Duality: Equilibrium with Indivisibilities & Income Effects

Elizabeth Badlwin (), Omer Edhan (), Ravi Jagadeesan (), Paul Klemperer () and Alexander Teytelboym ()
Additional contact information
Elizabeth Badlwin: Dept of Economics and Hertford College, University of Oxford
Omer Edhan: Department of Economics, University of Manchester
Ravi Jagadeesan: Harvard Business School and Department of Economics, Harvard University
Alexander Teytelboym: Department of Economics, Institute for New Economic Thinking, and St. Catherine’s College, University of Oxford

No 2020-W08, Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: We show that, with indivisible goods, the existence of competitive equilibrium fundamentally depends on agents’ substitution effects, not their income effects. Our Equilibrium Existence Duality allows us to transport results on the existence of competitive equilibrium from settings with transferable utility to settings with income effects. One consequence is that net substitutability—which is a strictly weaker condition than gross substitutability—is sufficient for the existence of competitive equilibrium. We also extend the “demand types” classification of valuations to settings with income effects and give necessary and sufficient conditions for a pattern of substitution effects to guarantee the existence of competitive equilibrium. JEL codes: C62, D11, D44

Pages: 49 pages
Date: 2020-07-01
New Economics Papers: this item is included in nep-upt
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Working Paper: The Equilibrium Existence Duality: Equilibrium with Indivisibilities & Income Effects (2020) Downloads
Working Paper: The Equilibrium Existence Duality: Equilibrium with Indivisibilities & Income Effects (2020) Downloads
Working Paper: The Equilibrium Existence Duality: Equilibrium with Indivisibilities & Income Effects (2020) Downloads
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