Foundations of Pseudomarkets: Walrasian Equilibria for Discrete Resources

Abstract

We study the assignment of objects 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.