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Market Arbitrage, Social Choice and the Core

Chichilnisky, Graciela

This paper establishes a clear connection between equilibrium theory, game theory and social choice theory by showing that, for a well defined social choice problem, a condition which is necessary and sufficient to solve this problem-limited arbitrage-is the same as the condition which is necessary and sufficient to establish the existence of a equilibrium and the core. The connection is strengthened by establishing that a market allocation, which is in the core, can always be realized as a social allocation, i.e. an allocation which is optimal according to an ordering chosen by a social choice rule. Limited arbitrage characterizes those economies without Condorcet triples, and those for which Arrow's paradox can be resolved on choices of large utility values.



More About This Work

Academic Units
Department of Economics, Columbia University
Department of Economics Discussion Papers, 9596-30
Published Here
March 3, 2011


July 1996