Large economies with differential information and without free disposal
Angeloni, Laura; Martins-da-Rocha, Victor-Filipe (2009), Large economies with differential information and without free disposal, Economic Theory, 38, 2, p. 263-286. http://dx.doi.org/10.1007/s00199-008-0369-1
TypeArticle accepté pour publication ou publié
Journal nameEconomic Theory
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Abstract (EN)We consider exchange economies with a continuum of agents and differential information about ﬁnitely many states of nature. It was proved in Einy, Moreno, and Shitovitz (2001) that if we allow for free disposal in the market clearing (feasibility) constraints then an irre- ducible economy has a competitive (or Walrasian expectations) equilibrium, and moreover, the set of competitive equilibrium allocations coincides with the private core. However when feasibility is deﬁned with free disposal, competitive equilibrium allocations may not be in- centive compatible and contracts may not be enforceable (see e.g. Glycopantis, Muir, and Yannelis (2002)). This is the main motivation for considering equilibrium solutions with exact feasibility. We ﬁrst prove that the results in Einy, Moreno, and Shitovitz (2001) are still valid without free-disposal. Then, motivated by the issue of contracts’ execution, we adapt the incentive compatibility property introduced in Krasa and Yannelis (1994) and we prove that every Pareto optimal exact feasible allocation is incentive compatible, implying that contracts of competitive or core allocations are enforceable.
Subjects / KeywordsLarge exchange economies; Incentive Compatibility; Competitive and Core Allocations; Differential information
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