Pareto-Optimal Assignments by Hierarchical Exchange

13 Pages Posted: 7 Jul 2011

See all articles by Sophie Bade

Sophie Bade

Max Planck Institute for Research on Collective Goods

Date Written: June 3, 2011

Abstract

A version of the Second Fundamental Theorem of Welfare Economics that applies to a money-free environment, in which a set of indivisible goods needs to be matched to some set of agents, is established. In such environments, "trade" can be identified with the set of hierarchical exchange mechanisms defined by Papai (2000). Papai (2000)'s result – that any such mechanism yields Pareto-optimal allocations – can be interpreted as a version of the First Fundamental Theorem of Welfare Economics for the given environment. In this note, I show that for any Pareto-optimal allocation and any hierarchical exchange mechanism one can find an initial allocation of ownership rights, such that the given Pareto-optimal allocation arises as a result of trade.

Suggested Citation

Bade, Sophie, Pareto-Optimal Assignments by Hierarchical Exchange (June 3, 2011). MPI Collective Goods Preprint, No. 2011/11, Available at SSRN: https://ssrn.com/abstract=1880928 or http://dx.doi.org/10.2139/ssrn.1880928

Sophie Bade (Contact Author)

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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