Discussion paper

DP15161 Foundations of Pseudomarkets: Walrasian Equilibria for Discrete Resources

We study the assignment of objects in environments without transfers allowing for single-unit and general multi-unit demands, and any linear constraints, thus covering a wide range of applied environments, from school choice to course allocation. We establish the Second Welfare Theorem for these environments despite them failing the local non-satiation condition that previous studies of the Second Welfare Theorem relied on. We also prove a strong version of the First Welfare Theorem. We thus show that the link between efficiency and decentralization through prices is valid in environments without transfers, and hence provide a foundation for pseudomarket- based market design by showing that the restriction to such mechanisms is without loss of generality.


Miralles, A and M Pycia (2020), ‘DP15161 Foundations of Pseudomarkets: Walrasian Equilibria for Discrete Resources‘, CEPR Discussion Paper No. 15161. CEPR Press, Paris & London. https://cepr.org/publications/dp15161