American Economic Review Vol. 111 No. 11 2021

Constrained Pseudo-Market Equilibrium

Federico Echenique¹; Antonio Miralles²; Jun Zhang³

¹ Division of the Humanities and Social Sciences, California Institute of Technology (email: ) · ² Department of Economics, Universitat Autònoma de Barcelona and Barcelona Graduate School of Economics and Università degli Studi di Messina (email: ) · ³ Institute for Social and Economic Research, Nanjing Audit University (email: )

Abstract

We propose a pseudo-market solution to resource allocation problems subject to constraints. Our treatment of constraints is general: including bihierarchical constraints due to considerations of diversity in school choice, or scheduling in course allocation; and other forms of constraints needed to model, for example, the market for roommates, combinatorial assignment problems, and knapsack constraints. Constraints give rise to pecuniary externalities, which are internalized via prices. Agents pay to the extent that their purchases affect the value the of relevant constraints at equilibrium prices. The result is a constrained-efficient market-equilibrium outcome. The outcome is fair to the extent that constraints treat agents symmetrically.

DOI

10.1257/aer.20201769

Volume

111

Issue

11

Pages

3699-3732

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓