Fix price equilibria in destribution economies

Abstract

In this paper we consider a distribution economy which is dictated by the conditions of the non-substitution theorem for linear economic models of production. Although flexible prices in the consumption section are perfectly compatible with the conclusions of the non-substitution theorem, rigid prices are likely if the production sector has sufficient say over the economy. We study some existence and efficiency properties of fixed-price equilibrium in distribution economies. Subsequently, we turn to an economy with a produced public good and show that all voluntary and efficient allocations for such an economy must be ratio equilibrium allocation, thus establishing the inherent non-optimality of rationing schemes in mixed economies.