The Equilibrium Existence Duality: Equilibrium with Indivisibilities & Income Effects

52 Pages Posted: 29 Jun 2020

See all articles by Elizabeth Baldwin

Elizabeth Baldwin

University of Oxford - Department of Economics; Hertford College, Oxford

Omer Edhan

University of Manchester

Ravi Jagadeesan

Harvard University - Business School (HBS); Harvard University - Department of Economics

Paul Klemperer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Alex Teytelboym

University of Oxford - St. Catherine's College

Date Written: June 2020

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 Classification: C62, D11, D44

Suggested Citation

Baldwin, Elizabeth and Edhan, Omer and Jagadeesan, Ravi and Klemperer, Paul and Teytelboym, Alex, The Equilibrium Existence Duality: Equilibrium with Indivisibilities & Income Effects (June 2020). CEPR Discussion Paper No. DP14926, Available at SSRN: https://ssrn.com/abstract=3638030

Elizabeth Baldwin (Contact Author)

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

Hertford College, Oxford ( email )

Hertford College
Catte Street
Oxford, OX1 3BW
United Kingdom

HOME PAGE: http://elizabeth-baldwin.me.uk/

Omer Edhan

University of Manchester ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Ravi Jagadeesan

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Paul Klemperer

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 278 588 (Phone)
+44 1865 278 557 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Alex Teytelboym

University of Oxford - St. Catherine's College ( email )

Manor Road
Oxford, OX1 3UJ
United Kingdom

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