Existence of a Walrasian Equilibrium in Locally Convex Topological Vector Spaces, with Interdependent Utility Functions ()
1. Introduction
Looking for commodities as physical goods which may differ on time or in the states of the world in which they become available, and allowing infinite variation in these contingents, the generalization of the classical model of General Equilibrium to models of economies with infinitely many commodities looks natural. Since the consumption sets of these economies are subsets of infinite dimensional vector spaces they are usually called, infinite dimensional economies.
The purpose of this paper is to prove the existence of Walrasian equilibrium in economies whose consumption sets are subsets of a locally convex topological vector space with a lattice structure. Utilities are, interdependent, (i.e., may depend on the choices of others) and prices dependent. The set of consumers is finite.
Our work generalizes the seminal work of G. Debreu (1952) (see [1] ) to economies whose consumptions sets are subsets of locally convex topological vector spaces. Several problems arise when we try to extend well known results in finite dimensional economies to infinite dimensional economies. In the specialized literature are considered finite economies those whose consumption sets are subsets of finite dimensional vector spaces like
and infinite dimensional economies those whose consumption sets are subsets of infinite dimensional vector spaces, like, for instance, Banach spaces, the space of bounded functions, the set of square integrable functions, the set of bounded sequences, etc...
The main difficulty in extending to infinite-dimensional economies the well known results for finite dimensional economies, lies in the non-uniqueness of possible linear1 Hasudorff2 topologies to be chosen for a same infinite dimensional vector spaces, while in finite-dimensional vector spaces there are (essentially) a single topology combining these two properties (Hausdorff and linearity). More precisely, every linear Hausdorff topology on a finite dimensional space, define the same family of open sets. In infinite dimensional vector spaces this claim is no longer true. In this case we must choose a topology. The generality of the results obtained in these models depends largely on the chosen topology. Recall that when we choose the topology we are choosing the family of open sets and consequently the continuous functions and also the compact sets, the convergent nets, etc.
The existence of a continuous utility function and a compact budget constraints is a sufficient condition for the existence of the individual demand function. If we consider in a vector space, a weaker topology than another (i.e., a topology with less open subsets), some functions continuous in the initial topology will no longer be continuous in the weaker one. The less open sets a topology has, the less continuous functions there are, but more compact sets there are. Note that Hausdorff topology must have a significant number of open sets. A vector space with a topology associate is called a topological vector space.
Given that utility functions represent preferences, is clear that we must be careful when elucidating the topology. We must try not to lose generality and lose the fewest possible utility functions to be considered in our analysis. On the other hand, recall that prices are a subset of the linear and continuous real functions (functionals) on a given topological space then, we need choose a topology such that linear functionals remain being continuous even when we consider a weaker topology. The weakest topology verifying this property is called the weak topology. For a survey on this topic see [2] .
Our results are close to the previous work of Yannelis and Prabhakar (1983) (see [3] ). But unlike what was done in this and in others subsequent works, where only the existence of an equilibrium in the sense of Shafer-Sonnenschein3 is proved, we show the existence of Walrasian equilibrium. That is, we show the existence of a pair
conformed by prices and an allocation, in a dual pair
(see below), such that every consumer maximizes his preferences (that may depends on the choices of the others and/or on prices) in their budget sets. Here, by
we denote a locally convex topological vector space and by
we denote a total subspace of
the algebraic dual of
i.e.; the set of all linear functionalities defined on
We consider that the consumption set of each consumer is the positive cone of a locally convex topological vector space. In order to prove the existence of the Walrasian equilibrium we assume the existence of a countable and increasing family of bounded and closed subsets of
which cover
As we shall see this property is not to strong and it is verified by a wide range of topological vector spaces.
Unlike [5] we do not consider the hypothesis of 0-diagonality quasi-concave utility functions, however we assume the weak continuity of such functions. This condition appears naturally in different situations. In particular in finance models, where any condition with respect to the continuity of utilities should be considered to ensure the existence of equilibrium, see for instance [6] . Generally this condition is known as consumer impatience and it is equivalent to the weak continuity of utilities. Unlike de G. Chichilnisky and A. Mas-Colell (see [7] and [8] ) and others authors, we do not consider the hypothesis of properness for the utility functions.
The rest of the paper is organized as follows: In Section 2 we consider some topological facts which are necessary to understand the rest of the work. In Section 3 we introduce the model and in Section 4, we show the existence of a Social Equilibrium for a generalized game. In Section 5 we consider a pure exchange economy whose utilities are interdependent and prices dependent The consumption set, for this economy is the positive cone of a locally convex topological vector space and we prove the existence of a Walrasian equilibrium, without any additional condition on the consumption set. In section 8 we analyze the main characteristics of the utility functions considered in this work. And finally we give some conclusions.
2. Some Topological Facts
Suppose that
and
are linear spaces, and that
is a bilinear form on
in which case
and
are paired spaces. In this case any ny
determines a linear functional on
, namely
We say that a topology
on
is a topology of the pair
if
is the topological dual (i.e; the set of continuous linear functions defined on
), In this case
We denote by
the weakest topology in
which makes continuous all the linear functionals,
If for each nonzero
there exists
such that
then
is said total or that distinguishes points of
The analogous meaning is attached to
distinguishes points of
If each vector space distinguishes points of the other, then we call
a dual pair. The weakest topology defined on a vector space
such that
represent the set of continuous linear functions, is called the weak topology on
defined by
and will be denoted by the symbol
The following result is useful (see [9] ).
Theorem 1. For a pair
the following are equivalent:
1.
distinguishes points of
2.
is Hausdorff.
Given a dual pair:
a locally convex topology4
for
is a topology of the pair or is consistent with the pairing if
So, two topologies
and
in
are said consistent with the dual pair
if
In what follows we consider a dual pair
and the weak topology
We recall the following properties and definitions of weak-closed and bounded susbset.
1. According to the Mackey’s Theorem, all locally convex topologies consistent with a given dual pair, have the same collection of bounded sets and the same collection of closed convex sets. This property is known as the Permanence of closed convex sets.
2. A subset
is weakly bounded if it is pointwise bounded. That is
is weakly bounded if and only if for every
the set
is bounded in
Analogously,
is
bounded if and only if for every
the set
is bounded in
For a locally convex topological vector space,(l.c.t.v.s)
by
we denote its algebraic dual, i.e., the vector space of all linear functional on
(continuous or not) and by
we denote the vector spaces of all continuous linear functionals on
Let
be a subspace of
such that distinguishes points, or equivalently
is a total subspace. It follows that,
1.
is a dual pair. Given the dual pair
some times to make less cumbersome notation, we shall denote the weak topology
, just as
2. The topology
is Hasudorff and locally convex.
3. Note that
in
if and only if
for all
4. The locally convex Hasudorff topology
is known as the weak* topology (or simply the
topology) on
5.
in
if and only if
By Alaoglu’s Theorem we know that:
If
is a neighborhood of zero for some locally convex consistent topology with the dual
then, its polar
is
compact. Similarly, if
is a neighborhood of zero for a consistent locally convex topology on
then its polar
is
compact.
Note also that the Alaoglu’s theorem provides something like a Heine-Borel property for the
topology, namely that closed an bounded subset of
are
compact.
Next we describe hemicontinuity of correspondences in terms of nets.
Definition 1. Let
and
be two locally convex vectorial topological spaces. Let
be a correspondence between these spaces, Let
then:
1.
is upper hemicontinuous at
if and only if the following property holds: Let
be a net such that
and let
then the net
has a limit point in
2.
is lower hemicontinuous at
if and only if the following property holds: Let
be a net such that
and let
then there exists a subnet
and elements
such that the net
converges to
3.
is continuous at
if and only is upper and lower hemicontinuous.
3. The Model
We consider a locally convex, topological vector space
equipped with a partial order
That is
is a transitive reflexive and antisymmetric binary relation, compatible with the algebraic structure of
in the sense that, the following properties are verified:
1.
implies
2.
implies
for each
The positive cone is the pointed convex set
Given
and
in
if and only if
In order to prove the existence of the Walrasian equilibrium, we assume the existence of a increasing fundamental sequence
of
closed, convex, balanced and bounded subsets of
such that
and verifying that
Note that this property is verified by a wide range of topological vector spaces. For instance all Banach spaces even with any compatible topology and all strong dual of Fréchet spaces, among others.
In which follows we assume that if
and
are topological vector spaces then
is doted with the product topology, i.e.,
Following [1] , we introduce the definition of Abstract Economy or Generalized Game.
Definition 2. (Abstract Economy or Generalized Game) Consider a set of
agents indexed by
An Abstract Economy is a set of
triads
where:
1.
is a collection of subsets of
For each
represents the set of pure strategies of the i-th agent.
2.
is the utility function of the i-th player. Where:
(a)
thus
if and only if
(b) We denote by
the set of strategies profiles.
(c)
is a correspondence, such that for each
we have
Note that each
represents a list of actions chosen by each player except for the i-th and
represents the set of strategies of the i-th player.
We consider that each agent chooses
in order to solve the maximization problem
4. The Social Equilibrium Existence
This background makes the following formal definition Social Equilibrium.
Definition 3. (Social Equilibrium) A strategy profile
is a Social Equilibrium if for each
it follows that
and
In that follows we assume that for each
1.
is a nonempty, weak compact and convex subset of
That is
is a
compact and convex subset of
2.
is
continuous, and quasi concave in the first variable, i.e.,
is quasi concave for each
3. The correspondence
is nonempty weak continuous and weak compact valued.
The following theorem establishes the existence of a social equilibrium for an abstract economy.
Theorem 2. (Existence of the Social equilibrium) Let
be a topological vector space, where
is a locally convex topology on
consistent with the dual pair
Let
be a finite collection of nonempty, convex,
compact subsets of
and let
be a family of weak continuous functions and quasi-concave in the first variable. Let
be a
continuous correspondence and weak compact valued. Then there exists a Social Equilibrium for the abstract economy.
In order to prove this theorem we need to proceed step by step. Some previous definitions, theorems and its corollaries are necessary.
Let
be a correspondence. We denote by
the graph of
i.e.; the subset of
We shall use the following theorem [10] .
Theorem 3. (Berge’s Maximun Theorem) Let
and
be locally convex, topological vector spaces and
be a continuos correspondence with nonempty and compact values. Suppose that
is a continuous function. Then
1.
is a continuous function.
2. The correspondence
is upper hemiconti- nuous correspondence with compact values.
The following corollary is straightforward.
Corollary 1. (Weak Berge’s Theorem) Let
be a locally convex topological vector space, and
a consistent topology with the dual pair
Let
be a Hausdorff locally convex vector space where
is a compatible topology with de dual pair
Let
be a nonempty,
compact and convex subset of
and
a
continuous correspondence with nonempty
compact and convex values, and suppose that
is a
continuous function. Then
1.
is a
continuous function.
2. The correspondence
is an upper weak hemicontinuous correspondence.
The following fundamental fixed point theorem is due to Kakutani-Fan-Glicksberg, see [11] .
Theorem 4. (Kakutani-Fan-Glicksberg) Let
be a nonempty compact convex subset of a locally convex Hausdorff space and let the correspondence
be upper hemicontinuous, compact and convex valued. Then the set of fixed points of
is compact and nonempty.
We have the next straightforward corollary.
Corollary 2. (Weak Kakutani-Fan-Glicksberg) Let
be a
compact subset of
and let the correspondence
be
-upper hemicontinuous,
comoact valued. Then the set of fixed points of
is
compact and nonempty.
Now we give the proof of the existence of the Social equilibrium.
Proof: Consider the correspondence
Since
is a weak-continuous correspondence, weak-compact and convex valued and
is weak continuous function, then by the corollary (1), it follows that
is an upper weak hemicontinuous correspondence. Since in addition,
is quasi-concave in the first variable, then
is convex valued.
The product correspondence
given by
is jointly upper
hemicontinuous, compact and convex valued correspon- dence. Recall that the product of a family of topological spaces is compact in the product topology if and only if each factor is compact. Finally, since the
topology is a Hausdorff topology then, by the corollary (2), there exists a fixed point
such that
5. “Generalized” Economies and Pseudo-Games
Consider the locally convex topological vector space
partially ordered by
. Consequently the positive cone is given by
i.e.; the subset of all of element of
lower bounded by
Let
be a neighborhood of zero. The polar
of
will be denoted by
i.e.;
In general we can consider the
polars.
Note that
By the Alaoglu’s theorem
and
are
compact.
We symbolize by
the subset of
given by,
Recall the next proposition (see for instance [12] ).
Proposition 5. Let
a locally convex topological vector space. If the space
distinguishes points in
and
and
are non empty
ccompact and disjoint subsets of
then there exists
that strongly separates
and
i.e.:
The proposition follows because the topology
is Hausdorff
y
are
compact, and since
is the dual of
then by the strong separation theorem there exist a nonzero
strongly separating them.
In our case
is
compact, and by
take a point
So,
and
are
closed disjoint and convex subset of
We consider a pure exchange economy
where
1.
is a finite set of indexes,
one for each consumer.
2.
is the consumption subset of the
consumer. By
we symbolize the cartesian product
3. By
we denote the utility function for the i-th consumer. In addition we assume that utilities are
-continuous and strictly quasi concave functions in the first variable.
4. By
we symbolizes the initial endowment of the i-th consumer.
We shall use a pseudo-game as a mathematical tool that allow us to prove the existence of a Walrasian Equilibrium in interchange economies. We consider consumers as the players of a pseudo game, and the budget set is the set of available strategies for each consumer. These players are looking to maximize their utility functions. A fictional player that corresponds to the market, is introduced. His objective is to choose a set of prices
maximizing
given the allocation
Recall that the evaluation map
restricted to
is jointly continuous in the
topology.
Now, we represent an interchange economy in terms of pseudogames.
1. Let
be the budget correspondence for the i-th agent, given by,
2. Note that the budget correspondence is
upper hemicon- tinuous (moreover is constant in
) and convex valued. But no need to be lower hemicontinuos.
3. For each
the function
given by
is the utility function of the i-th agent. These are
continuous functions and strictly quasi concave in the first variable i.e.,
is strictly quasi concave for each
4. Each consumer looks to solve the maximization problem
.
5. For the fictional player the correspondence
given by
.
6. This player looks to solve the maximization problem
.
To prove the existence of a Walrasian equilibrium we begin considering a restricted economy:
where
and
is a
compact and convex subset of
for all
By
we denote the budget set of the i-th agent corresponding to the restricted economy.
For some
we define the subset
by
Consider the correspondence
defined by
Note that this is a continuous correspondence between the
compact set
and
with the
topology.
We consider for each
the i-th restricted budget set
of the restricted economy. For each
is a
compact subset of
Note that
can be written as
and from the Alaoglu theorem is a
compact subset of
Consider the set
as the strategy set of each consumer and in addition, consider a fictional player with
as his strategy set. While consumers choose their strategy in order to maximize their utility function, taking into account what others do, the fictional player chooses his strategy trying to maximize the function
given
the choice of consumers.
• Given
and
the i-th consumer looks to solve the optimization problem
given
and
• Given,
the fictional player looks to solve
Now consider
where by
we denote the fictional player.
Let
be the product of the budgets correspondence and
be the correspondence product given by
Given that we are in the conditions of the theorem (2) then, there exists a fixed point for the correspondence
i.e.;
such that
This fixed point is a Social equilibrium for the
economy with the restricted budget set.
As it is easy to see, this Social equilibrium is a Walrasian equilibrium for the restricted economy.
Let
be a Nash equilibrium, then the following inequality holds,
Since for all
the inequality
holds then, we have that
By contradiction, if
then there exists
such that
This contradicts the fact that
for all
Next we show that there exists a restricted economy, such that its Walrasian equilibrium is a Walrasian equilibrium for the economy.
6. The Walrasian Equilibrium
We shall choose an useful weak compact subset
verifying that
such that if,
is Walrasian equilibrium of the restricted economy
then it is a Walrasian equilibrium for the original or unrestricted economy
.
In order to do this, we begin considering the set of feasible allocations for the economy, i.e.; the set
For each
it follows that
Let
be the fundamental sequence of
closed, convex, balanced and bounded subsets of
already defined in section (3), verifying that
and that covers
i.e.;
Choose
large enough that
Let
be a
compact subset of the the order interval
given by
The
compactness property of
follows from the Alaoglu theorem.
From the previous section we know that there exists a Walrasian equilibrium for the restricted economy
.
Let
be the Walrasian equilibrium for the restricted economy
where for all
We shall show, that
is a Walrasian equilibrium for the (unrestricted ) economy
In order to see this we consider
a Walrasian equilibrium of the economy
. Then it follows that:
1.
2. For all
maximizes
in the budget set
The claim 1, is straightforward from the definition. To prove the claim 2, we argue by contradiction.
(a) Suppose that there exist some
such that
and
(b) Let
be the segment linking
with
i.e.,
For every
it follows that
So,
(c) Since preferences are strictly convex, we have that then
But if
then
contradicting the previous inequality.
Thus
is a Walrasian equilibrium for the economy
.
Remark 1. Note that we have shown the existence of a Walrasian equilibrium
where
and
with the only restriction that
is a dual pairing.
Remark 2. Let
be a Walrasian equilibrium for the economy
. Note that if the i-th consumer prefers more than less, then an equilibrium prices
can not satisfy
for some
because in this case
and
contradicting the assumption that
is a Walrasian allocation.
7. A Consideration about the Hypothesis of Weak Continuity
Note that the assumption of weak continuity of utility functions is not too strong. In fact, in [6] is shown that assuming continuity of preferences with respect to topologies stronger than the Mackey topology, it is possible to obtain a large class of economies without Pareto optimal allocations and then, without equilibrium. Moreover in the opus cited is shown that the Mackey topology is the strongest topology for which upper semi continuous preferences are impatient.
On the other hand in [13] is shown that impatient behavior is enough to guarantee the existence of Pareto optimal allocations.
Example
The existence theorem has an immediate application in economies without temporal horizon, for instance in finance theory weak continuity of the utilities functions is a natural and necessary hypothesis.
Classically, these economies are modeled in
This set is a reflexive Banach space, where
if and only if
The coordinate
denote the consumption on time
In this case, the weak continuity of the utility functions is equivalent to discount the future (some kind of impatient behavior). Meaning that if
are allocations verifying that
is strictly preferred to
then for each
there exists
such that
is strictly preferred to
where
This is an habitual assumption in macroeconomic and in finance theory.
8. Considerations on the Utilities, Revisited
Note that following this approach, we have shown that there exist the Walrasian equilibrium even when individual preferences depend on the action of the others, or they are prices dependent.
Prices dependent preferences are considered for instance in [14] , [15] and in [16] . Preferences for goods may depend on prices because, for instance, people judge quality from price. This procedure can be supported by a rational strategy under a framework of uncertainty, but it looses a part of this value when, even in a framework of uncertainty, some peoples are considered as expert. In this case the preference is influenced by the action of the others. This dependence is an important factor for decisions in several circumstances. For instance when people imite the action of their pairs, in particular when individuals look to fashion.
In Game Theory the rational individual choice depends on that the others are doing, so in this field the literature considering this dependence is natural and abundant. However, in economics the literature looking for the dependence of individual preferences on that others are doing is very sparse. Moreover generally, preferences are considered part of the foundations of the economy and therefore immutable. In our approach utility functions can be considered as prices depending, and the set of alternatives can change according with the choice of the others consumers and even under these circumstances, provided that
is a weak compact correspon- dence, the Walrasian Equilibrium exists. The utilities are symbolized by
and the consumer problem is to solve the following optimization problem:
9. Conclusions
In this work we have shown that it is possible to extend to economies of infinite dimension, the demonstration of the existence of the Walrasian equilibrium made for finite economies. Without significant loss of generality in the choice of utility functions and consequently in the possible preferences to be considered in the model. Moreover, we show that Walrasian equilibrium exists, even though these utilities defined in very general sets (locally convex topological vector spaces) also depend on the choice of others and prices. In order to do this, we use techniques well known in Functional Analysis. This extension shows the strength of concepts such as the Walraisian equilibrium and its permanence when we generalize the economic models.
We conclude saying that the techniques of Functional Analysis are of great utility for solving in an unified way, several economic problems corresponding to different areas of the economic theory. For instance, for growth theory in which the vector space of continuous functions is the set in which utilities or profits are maximized, or for finance theory in which the vector spaces
of square integrable functions is widely used.
Acknowledgments
The authors wish to thank the comments and suggestions made by Carlos Hervés- Beloso, to improve this work. Errors that still persist are the sole responsibility of the authors.we also thank the Editor and the anonymous referee for their comments. Research of Elvio Accinelli is supported by CONACYT; by the program Estancias Sabáticas y Posdoctorales. This support is greatly appreciated.
NOTES
1A topology defined in a vector space is said to be linear if with respect to it, the vectors sum and the multiplication of a vector by a scalar are both continuous operations.
2A topology is Hausdorff or
if for distinct points there are disjoint open set.
3see [4] .
4A topology defined on
is said locally convex if each point
has a local base of neighborhoods consisting of convex sets.