A Top Dog Tale with Preference Rigidities
Quaderni DSE Working Paper No. 839
32 Pages Posted: 4 Jul 2012
Date Written: July 4, 2012
With preference rigidities we find Pareto optima of an exchange economy, some of which involve unconsumed endowments. We show that such Pareto Optima can only be attained as market equilibria if there is a top dog in the initial endowment distribution who is richer than the other individuals. The most inegalitarian efficient allocation favoring the top dog is globally stable and is in the core. For endowment distributions with a top dog, the core contains efficient allocations more equal than the market equilibrium. A voting mechanism or government policy can also offset the top dog’s power.
Keywords: exchange economy, complements, top dog allocation
JEL Classification: D50, D61
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