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Walrasian Allocations without Price-Taking Behavior

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  • Serrano, Roberto
  • Volij, Oscar
Abstract
Consider an exchange economy where agents are arbitragers, in that they try to upset allocations imagining plausible beneficial trades. With an introspective algorithm, each agent constructs an interactive choice set (ICS), i.e., a set of bundles that he considers achievable through a sequence of plausible trades with other agents. We show that Walrasian allocations can be characterized as those where each agent chooses optimally from his ICS, which is always contained in a budget set (with differentiability, both sets coincide). Our analysis provides a different behavioral assumption underlying Walrasian allocations, offers an explanation for the source of competitive prices, and connects with the core convergence theorem.
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  • Serrano, Roberto & Volij, Oscar, 2000. "Walrasian Allocations without Price-Taking Behavior," Journal of Economic Theory, Elsevier, vol. 95(1), pages 79-106, November.
    • Handle: RePEc:eee:jetheo:v:95:y:2000:i:1:p:79-106
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    3. M. Ali Khan, 2007. "Perfect Competition," PIDE-Working Papers 2007:15, Pakistan Institute of Development Economics.
    4. Segal, Ilya, 2007. "The communication requirements of social choice rules and supporting budget sets," Journal of Economic Theory, Elsevier, vol. 136(1), pages 341-378, September.
    5. Zigrand, Jean-Pierre, 2006. "Endogenous market integration, manipulation and limits to arbitrage," Journal of Mathematical Economics, Elsevier, vol. 42(3), pages 301-314, June.
    6. Ilya Segal, 2004. "The Communication Requirements of of Social Choice Rules and Supporting Budget Sets," Economics Working Papers 0039, Institute for Advanced Study, School of Social Science.

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