Implementation in production economies with increasing returns
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In this paper, we investigate incentive aspects of a general price- setting equilibrium principle in production economies with increasing returns or more general types of non-convexities. We do so by introducing the notion of generalized mechanism. We allow preferences and individual endowments to be unknown to the planner. We present a simple generalized mechanism whose social equilibrium allocations coincide with pricing equilibrium allocations. The pricing equilibrium solutions are very general and include marginal pricing equilibrium, loss-free pricing equilibrium, average pricing equilibrium, and voluntary trading equilibrium as special cases. When a pricing equilibrium principle yields Pareto efficient allocations, the mechanism doubly implements the pricing equilibrium correspondence in social and strong social equilibria. Furthermore, the mechanisms work not only for three or more agents, but also for two-agent economies. 2004 Elsevier B.V. All rights reserved.
