Existence of voting-market equilibria (Q789295)

The authors define a Voting Market Equilibrium (VME) whereby private goods are allocated by markets and a single public good (or public bad) is allocated by majority rule. This concept of an equilibrium differs from earlier ones in that tax functions are parameters of the economy, rather than endogenously determined, and in that a majority rather than unanimity, determines the level of the public good. Two kinds of majority rules, relative and absolute, are defined. The existence of a quasi-VME (in which demands may in fact be quasi-demands) with the absolute majority rule is proved when the individual demands are upper-semi-continuous correspondences. Its existence with the relative majority rule, however, is only guaranteed when the individual demands are continuous functions. An assumption of quasi-transferability in private goods, and a monotonicity assumption for the tax functions, is shown to imply that all allocations that are preferred by a consumer to his equilibrium allocation do not belong to his budget set, so that the quasi-VME is in fact a VME. Finally, the assumptions and conclusions of the paper are compared with related work by S. Slutsky.