Walrasian allocations without price-taking behavior (Q1592827)

The paper under review deals with the properties of optimal allocation in an exchange economy with perfect competition where agents are arbitragers aiming at upset this allocations imaging plausible beneficial trades. The main concept of the paper is ``interactive choice set'' which is a feasible set being constructed endogenously by the agent's desires of arbitrage. It is shown that an allocation is competitive if and only if each agent chooses optimally over the interaction choice set. The paper also offers an analysis of different behavioral assumptions underlying the Walrasian allocations, and an explanation for the source of competitive prices.