Competitive Equilibrium and Trading Networks: A Network Flow Approach

Candogan, Ozan; Epitropou, Markos and Vohra, Rakesh V. (August 2016) Competitive Equilibrium and Trading Networks: A Network Flow Approach. Former Series > Working Paper Series > IHS Economics Series 323, 20 p.

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Under full substitutability of preferences, it has been shown that a competitive equilibrium exists in trading networks, and is equivalent (after a restriction to equilibrium trades) to (chain) stable outcomes. In this paper, we formulate the problem of finding an efficient outcome as a generalized submodular flow problem on a suitable network. Equivalence with seemingly weaker notions of stability follows directly from the optimality conditions, in particular the absence of improvement cycles in the flow problem. Our formulation yields strongly polynomial algorithms for finding competitive equilibria in trading networks, and testing (chain) stability.

Item Type: IHS Series
Keywords: Trading Networks, Competitive Equilibrium, Stability, Submodular Flow Problems, Discrete Convexity
Research Units: Former Research Groups (until 2017) > Financial Markets and Econometrics
Former Research Groups (until 2017) > Macroeconomics and Public Finance
Date Deposited: 04 Aug 2016 07:34
Last Modified: 26 Sep 2019 16:45
ISSN: 1605-7996

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