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The Second Welfare Theorem in Economies with Non‐Walrasian Markets
Author(s) -
KOUTSOUGERAS LEONIDAS C.,
ZIROS NICHOLAS
Publication year - 2015
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12128
Subject(s) - economics , welfare , pareto optimal , pareto principle , general equilibrium theory , nash equilibrium , microeconomics , decentralization , mathematical economics , market economy , multi objective optimization , mathematics , mathematical optimization , operations management
The standard version of the second welfare theorem assumes that market operations produce Walrasian outcomes. Therefore, if there are individuals who can manipulate prices, the conclusion of the second welfare theorem is questionable. In this paper, we address the decentralization of a Pareto‐optimal allocation, when markets are non‐Walrasian. Our objective in this paper is to develop a game which can implement Pareto‐optimal allocations as Nash equilibria of strategic exchange in markets. In this way, we develop a version of the second welfare theorem for economies where markets are strategic.