Correlated Equilibrium and the Pricing of Public Goods.

Lindahl equilibrium is an application of price-taking behavior to achieve efficiency in the allocation of public goods. Such an equilibrium requires individuals to be strategically naive, i.e., Lindahl equilibrium is not incentive compatible. Correlated equilibrium is defined precisely to take account of strategic behavior and incentive compatibility. Using the duality theory of linear programming, we show that these two seemingly disparate notions can be combined to give a public goods, Lindahl pricing characterization of efficient correlated equilibria. We also show that monopoly theory can be used to characterize inefficient correlated equilibria.

Correlated Equilibrium and the Pricing of Public Goods

Lindahl equilibrium is an application of price-taking behavior to achieve efficiency in the allocation of public goods. Such an equilibrium requires individuals to be strategically naive, i.e., Lindahl equilibrium is not incentive compatible. Correlated equilibrium is defined precisely to take account of strategic behavior and incentive compatibility. Using the duality theory of linear programming, we show that these two seemingly disparate notions can be combined to give a public goods, Lindahl pricing characterization of efficient correlated equilibria. We also show that monopoly theory can be used to characterize inefficient correlated equilibria

Money and the Decentralization of Exchange

A pairwise trading process is formulated subject to conditions of nonnegativity of traders’ holdings and quid pro quo. It is shown that that: (i) There is a centralized procedure that achieves the equilibrium allocation for an arbitrary economy. (ii) It is not in general possible to find a decentralized procedure that achieves the equilibrium allocation for an arbitrary economy. (iii) In a monetary economy there is a decentralized procedure that achieves the equilibrium allocation. The usefulness of money is that it allows decentralization of the trading process