Consistent solutions in exchange economies: a characterization of the price mechanism

Nir Dagan

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We characterize the Walrasian allocations correspondence by means of four axioms: consistency, replica invariance, individual rationality and Pareto optimality. It is shown that for any given class of exchange economies any solution that satisfies the axioms is a selection from the Walrasian allocations with slack. Preferences are assumed to be smooth, but may be satiated and non--convex. A class of economies is defined as all economies whose agents' preferences belong to an arbitrary family (finite or infinite) of types. The result can be modified to characterize equal budget Walrasian allocations with slack by replacing individual rationality with individual rationality from equal division. The results are valid also for classes of economies in which core--Walras equivalence does not hold.

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