Computational Complexity of the Walrasian Equilibrium Inequalities

13 Pages Posted: 6 Mar 2014

See all articles by Donald Brown

Donald Brown

Yale University - Cowles Foundation

Date Written: March 5, 2014

Abstract

Recently Cherchye et al. (2011) reformulated the Walrasian equilibrium inequalities, introduced by Brown and Matzkin (1996), as an integer programming problem and proved that solving the Walrasian equilibrium inequalities is NP-hard. Following Brown and Shannon (2000), we reformulate the Walrasian equilibrium inequalities as the Hicksian equilibrium inequalities.

Brown and Shannon proved that the Walrasian equilibrium inequalities are solvable iff the Hicksian equilibrium inequalities are solvable. We show that solving the Hicksian equilibrium inequalities is equivalent to solving an NP-hard minimization problem. Approximation theorems are polynomial time algorithms for computing approximate solutions of NP-hard minimization problems.

The contribution of this paper is an approximation theorem for the NP-hard minimization, over indirect utility functions of consumers, of the maximum distance, over observations, between social endowments and aggregate Marshallian demands. In this theorem, we propose a polynomial time algorithm for computing an approximate solution to the Walrasian equilibrium inequalities, where explicit bounds on the degree of approximation are determined by observable market data.

Keywords: Rationalizable Walrasian markets, NP-hard minimization problems, Approximation theorems

JEL Classification: B41, C68, D46

Suggested Citation

Brown, Donald J., Computational Complexity of the Walrasian Equilibrium Inequalities (March 5, 2014). Cowles Foundation Discussion Paper No. 1938, Available at SSRN: https://ssrn.com/abstract=2404961 or http://dx.doi.org/10.2139/ssrn.2404961

Donald J. Brown (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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