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  3. American Economic Review
  4. November 2021
  5. Constrained Pseudo-Market Equilibrium

Constrained Pseudo-Market Equilibrium

  • Federico Echenique
  • Antonio Miralles
  • Jun Zhang
American Economic Review
vol. 111, no. 11, November 2021
(pp. 3699-3732)
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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.

Citation

Echenique, Federico, Antonio Miralles, and Jun Zhang. 2021. "Constrained Pseudo-Market Equilibrium." American Economic Review, 111 (11): 3699-3732. DOI: 10.1257/aer.20201769

Additional Materials

JEL Classification

  • D47 Market Design
  • D61 Allocative Efficiency; Cost-Benefit Analysis
  • D63 Equity, Justice, Inequality, and Other Normative Criteria and Measurement
  • I11 Analysis of Health Care Markets
  • I21 Analysis of Education