Quality of local equilibria in discrete exchange economies

Abstract: This paper defines the notion of a local equilibrium of quality

(r, s)

,

0 l e q r, s

, in a discrete exchange economy: a partial allocation and item prices that guarantee certain stability properties parametrized by the numbers

r

and

s

. The quality

(r, s)

measures the fit between the allocation and the prices: the larger

r

and

s

the closer the fit. For

r, s l e q 1

this notion provides a graceful degradation for the conditional equilibria of [10] which are exactly the local equilibria of quality

(1, 1)

. For

1 < r, s

the local equilibria of quality

(r, s)

are {em more stable} than conditional equilibria. Any local equilibrium of quality

(r, s)

provides, without any assumption on the type of the agents' valuations, an allocation whose value is at least

f r a c r s 1 + r s

the optimal fractional allocation. In any economy in which all agents' valuations are

a

-submodular, i.e., exhibit complementarity bounded by

a : g e q : 1

, there is a local equilibrium of quality

(f r a c 1 a, f r a c 1 a)

. In such an economy any greedy allocation provides a local equilibrium of quality

(1, f r a c 1 a)

. Walrasian equilibria are not amenable to such graceful degradation.

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