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Walrasian Allocations Without Price-Taking Behavior

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  • Volij, Oscar
  • Serrano, Roberto
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.

Suggested Citation

  • Volij, Oscar & Serrano, Roberto, 2000. "Walrasian Allocations Without Price-Taking Behavior," Staff General Research Papers Archive 5168, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:5168
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    References listed on IDEAS

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    1. Nir Dagan & Roberto Serrano & Oscar Volij, 2000. "Bargaining, coalitions and competition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(2), pages 279-296, March.
    2. Volij, Oscar & Serrano, Roberto, 1998. "Comment on Mclennan and Sonnenschein," Staff General Research Papers Archive 5099, Iowa State University, Department of Economics.
    3. Dubey, Pradeep & Mas-Colell, Andreau & Shubik, Martin, 1980. "Efficiency properties of strategies market games: An axiomatic approach," Journal of Economic Theory, Elsevier, vol. 22(2), pages 339-362, April.
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    7. Nir Dagan & Roberto Serrano & Oscar Volij, 1998. "Comment on McLennan and Sonnenschein 'Sequential Bargaining as a Noncooperative Foundation for Walrasian Equilibrium'," Econometrica, Econometric Society, vol. 66(5), pages 1231-1233, September.
    8. L. Hurwicz, 1979. "Outcome Functions Yielding Walrasian and Lindahl Allocations at Nash Equilibrium Points," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 46(2), pages 217-225.
    9. Nir Dagan, 1994. "Recontracting and competition," Economics Working Papers 152, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 1996.
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      • SCHMEIDLER, David & VIND, Karl, 1972. "Fair net trades," LIDAM Reprints CORE 131, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. McLennan, Andrew & Sonnenschein, Hugo, 1991. "Sequential Bargaining as a Noncooperative Foundation for Walrasian Equilibrium," Econometrica, Econometric Society, vol. 59(5), pages 1395-1424, September.
    13. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June.
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    Cited by:

    1. Dávila, J. & Eeckhout, J., 2008. "Competitive bargaining equilibrium," Journal of Economic Theory, Elsevier, vol. 139(1), pages 269-294, March.
    2. Yildiz, Muhamet, 2003. "Walrasian bargaining," Games and Economic Behavior, Elsevier, vol. 45(2), pages 465-487, November.
    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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