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BY YAKARKANNAI2
1. INTRODUCTION
ONEOFTHEprincipal difficulties in the theory of equilibrium in free-competition
markets is that the "core" does not coincide with the set of all "competitive
equilibrium allocations" [3, 4]. It has been felt since the time of Edgeworth [6]
that this is due to the fact that the action of a single trader has an effect on the mar-
ket. Therefore, people began to consider "large markets."
Two main solutions were given to the problem of the incoincidence of the core
and the competitive equilibrium. Debreu and Scarf [4] proved that if we let the
number of traders increase, the core will shrink to the set of competitive equilibria.
However, they allowed the number of traders to increase in a very special way.
They dealt with a finite number (say m) of different types of traders and considered
markets with mk traders (k traders of each type); then they let k tend to infinity.
This enabled them to compare the cores of different markets (with different k's),
which would be difficult otherwise, since the cores are subsets of Euclidean spaces
with dimensions varying with the number of traders, and there is no obvious way
to compare such sets.
R. J. Aumann [3] gave quite another solution. He considered a market with a
continuum of traders, and proved that in this case the core coincides with the set
of all equilibrium allocations.
Both the above models are only idealizations of the finite case, and it is not
obvious how well they describe actual markets. It is the aim of the present paper
to show that the continuous model may be regarded as the limit of models with a
finite number of traders. A far-reaching generalization (Theorem A) of the Debreu-
Scarf theorem will be obtained. The question of the continuity of the core (in the
continuous case) with respect to the initial state is also elucidated.
One of the first problems to be solved, before one can even formulate such
theorems, is how to let markets "tend to a limit," where not only the number of
' This research has been sponsored in part by the Logistics and Mathematical Statistics Branch,
Office of Naval Research, Washington, D.C., under Contract F 61052-67-C-0094. Reproduction in
whole or in part is permitted for any purpose of the United States Government. A part of this paper was
written while the author was at the Israel Institute for Biological Research.
2 The author wishes to thank R. J. Aumann for suggesting the problems and for some very helptul
conversations, L. Dubins, B. Peleg, and M. A. Perles for helpful suggestions, and L. S. Shapley for
bringing to the author's attention an inaccuracy in an earlier version of this paper (Research Memor-
andum 10).
791
traders and the commodities held by them varies, but their preferences also vary.
A topology is introduced on the space of preferences in order to overcome this
difficulty. This topology (described in Section 3) may have other applications as
well.
In order to overcome the difficulty of comparing markets with differentnumbers
of traders, the notion of "a representation of a finite market" by means of the
continuous model is introduced. Using these representations, we can attach a
precise meaning to the "tending" of markets to a "limit."
The concepts of s-cores, due to Shapley and Shubik [9], are used (though in a
different form). Whereas in [9] the existence of the s-cores was proved for large
markets using transferable utilities and letting the markets grow in a special way
(fixing the numbers of types, as in [4]), the non-emptiness of the c-core (in our case)
follows easily from the existence of the core in the continuous case [1], for a general
way of letting the markets grow.
Other results deal with continuity properties of cores and 6-cores and with
other properties that are essential to the description of actual markets by a
continuous model (see Section 7).
THEOREM: Under the above conditions the core coincides with the set of all equili-
briumallocations.
THEOREMA: If (in, >n) are continuous representationsof finite markets such that
(Si(n))n,oo-+ 0, if Xn is in the f-core of the nth marketfor every n, and if in -+ ,
n+ >-, Xn -+ x almost everywhere, and ST
iT
dt -+ST i dt, ST Xn dt -+ ST x dt, then
x is an equilibriumallocation.
This theorem is a generalization of the main theorem of Debreu and Scarf in [4],
which deals with markets with a fixed number (say k) of types of traders, having n
traders of each type, and strictly convex preferences. In that case traders of the
same type get the same commodity bundles in allocations which belong to the
core. Hence the cores of the markets with nk traders may be regarded as subsets
of the core of the market with k traders.
The main theorem of [4] states that the intersection (over n) of these subsets
coincides with the set of all equilibrium allocations. This follows from Theorem A
in the following way. Let us represent the market with k traders by the partition
JSj}j=l, and represent the initial allocation by i1(t) and the preferences by >-1(t).
We represent the market with nk traders by subdividing each Si into n disjoint
sets having the same measure. Then in(t) _ i1(t), >-n(t) -1(t). Let {xj}x =
belong to the intersection, and let x1 be its representation. Then the functions
xn(t) x1(t) belong to thef-cores of the nth markets, and all the assumptions of
Theorem A are satisfied trivially. Hence the limit x(t)- xn(t) is an equilibrium
allocation, so that {xj}xj= is an equilibrium allocation too. Thus the main
theorem of [4] is a special case of Theorem A.
Another result is the next theorem.
THEOREM
B: If (in, > ,,)and (i, >-) are continuousmarkets,xn are allocations in the
cores of the markets(in, >-n), and if in -+ i, xn -+ x, >-,n -+ >- almost everywhere,
ST in dt -+ST i dt, ST Xn dt ST x dt, thenx is in the core of (i, >).
-+
the convergencebeing uniforma.e. in T. Let x be in the core of (i, >). Thenfor every
E > 0 and for every sequence Xn of functions such that Xn X+ X uniformly a.e. and
STxn dt = STin dt, Xn belongs to the restricted s-core of (in >n) for all large n.
REMARK: If x belongs to the ordinary e'-core of (i, >), then (under the conditions
of Theorem C) the xn belong to the ordinary E + e'-core of (in a ,). If x is essen-
tially bounded and belongs to the restricted e'-core of (i, >-), then (under the condi-
tions of Theorem C') the xn belong to the restricted E + e'-core of (in, >n).
Theorem C', together with the existence theorem for the core of a continuous
market [1], may be used to prove existence theorems for s-cores. For example,
if we deal with markets with nk traders (n traders of each type) and represent them
by the same representations which were used to show that Theorem A implies the
Debreu-Scarf theorem (subject only to the condition lt(Sj) = 1/k, 1 < j < k),
we may obtain allocations in the s-core for large n in the following way..Let x be an
allocation in the core of (il, >-1), regarded as a continuous market. Then x is
essentially bounded (see p. 815).
Let {{SJ)}Jnk l} l be a sequence of partitions that are refinements of the
partition {S1,..., Sk} and such that ,y(S(P))= Jlnk, and let xn(t) be a sequence of
allocations, such that xn(t) is constant on S(n) (j = 1, . .. , nk),and x -+ x uniformly
a.e. (such a sequence may be constructed without difficulty). By Theorem C' the
xn belong to the restricted s-core of (in, >n) for large n, and by their construction
they represent allocations of the markets with nk traders, which belong to the
weak s-core. In [9] existence of the weak s-core (in the sense of [9]) is proved using
the same way of letting the markets grow. Similarly, Theorem C' shows that if
we have a sequence of finite markets which may be represented in such a way that
the partitions form a dense sequence of partitions in T, the in converge uniformly
a.e. to an essentially bounded limit i, and >-n -+ >- uniformly a.e., then for every
positive e, the weak s-cores for all but a finite number of the markets are not empty.
This, clearly, is a more general proposition than the Shapley-Shubik theorem on
existence of weak s-cores. (On the other hand, Shapley and Shubik do not assume
desirability and continuity of preferences).
Theorem C could be applied similarly, but the resulting s-cores of the finite
markets are weaker than the weak s-cores. An existence theorem for strong
s-cores demands, presumably, a much more delicate argument as well as stronger
assumptions on the preference orders.
THEOREM D: Let (i, >), (in, >-n) be continuous markets,in, i belonging to a weakly
sequentially compact set in L1. Let the function Xn belong to the ordinary g'-core
ofthe nth market(n = 1, 2, . ..) and letxn +x, i+ni, >n >a.e.,T xdt = fTi dt.
Thenfor every E > 0, x belongs to the ordinaryE + e'-core of (i, >).
THEOREM E: Let (i, >), (in, n) be continuous markets, let xn be in the ordinary
?
-core of (in, >-n), let in i, -- >- a.e., let STxn dt = STin dt, and let in(t), i(t),
Xn(t)< z(t) a.e. for an integrable z. Thenfor every c > 0, Xn belongs to the ordinary
THEOREMF: Let (i, >-) be a continuous market, x an allocation in its core. Then
there exist simplefunctions in, Xnn >- n with in -+ i, Xn -+ x, >-n + >- a.e., fT indt =
ST xn dt = ST i dt, an integrablez with in(t), i(t), Xn(t),x(t) < z(t) a.e., such thatfor every
c > 0 xn is in the ordinary ?-core of (in, >-n) for all sufficiently large n.
The corresponding theorems for the restricted c-cores follow.
THEOREM D': Let (i, >-), (in, >n) be continuousmarkets,let i be essentially bounded,
let the range of >-(t) be conditionally compact, and let in -i j, >-n,-- >- uniformly
a.e. Let thefunction Xn belong to the restricted c'-core of the nth market(n = 1, 2,. . .)
and let Xn ? x uniformly a.e. (so that T x dt = STi dt). Then for every c > 0, x
belongs to the restricted c + c'-core of (i, >-).
The importance of Theorem F' lies in the fact that it enables us to regard a
continuous market with an allocation in its core as a "limit," in a suitable sense,
of finite markets and allocations in their weak c-cores (if the initial distribution
is essentially bounded). Similarly, from Theorem F one concludes that any
(integrable) continuous market with an allocation in its core may be regarded
as a limit of finite markets and allocations in their "weaker" c-cores.
A preference order is called continuous if the set {(x, y): x >- y} is open in the
product space Q x Q; in other words, if Xn >+ x, Yn-+ y, and x > y imply Xn >_ Yn
for all sufficiently large n. It is well known [1, p. 3] that a continuous preference
order may be represented by a continuous utility, i.e., there exists a continuous
function u: Q -+ R such that x >- y > u(x) > u(y).
Denote by " a set of preference orders. We want to introduce a "natural"
F
topology on E. A plausible requirement on a topology on is that if x >- y and
if xn -+ x, Yn-+ y, and >-n -+ >- (in the topology of E), then Xn >-n Yn for all
sufficiently large n. In terms of open sets it says that the set A = {(x, y, >-): x >- y}
is open in the product space Q x Q x E. Therefore, if there is a minimal topology
on which makes the sets A open, then this may be considered a "natural"
topology on E. (This notion of natural topology is closely related to the compact-
open topology of function spaces [8]).
We are able to show that there is a natural topology on ~, to characterize it,
and to show that it has a countable basis. Assuming more on >-, we shall be able
to introduce a metric on E which will induce that topology.
Arrange the rational balls (i.e., the balls with rational center and rational radius)
in Qin a sequence {Si}. Set ,ij = {>- E : x >- y for all x c Si and y E Sj} (a superior
bar denotes closure). We shall denote the fact that x >- y for all x E A and for all
y E B by A >- B. (For example, Ei1 = { >-e : Si >- Sj}.) Of course, E 1 can be
non-empty only if Si n S= 0.
PROOF.The set A is open in that topology, for if (xo, yo, >- 0) E A, then (by the
continuity of >-0) there exist open sets U, V, with yo E V and xo E U, such that
U >-0 V We can find rational balls Si, Sj with xO E Si, yOE Sj, Si c U, Si c V
Then >-0e i,j and (xo,yo >-0)eSi x Si x Ei,j which is an open set in the
product topology.
F
Let Y be a topology on for which A is open. Let Si, Si be rational balls with
disjoint closures. We shall-show that E i,jis open in E. Let >- Edi,j (if E i,jis empty,
then it is trivially open). Then Si x Si x J>01c A. According to a theorem of
Wallace [8, Theorem 5.12], it follows from the compactness of Si, Sj, and {>-0} that
there exist open sets Ui, Uj E Q, Ve A Sk c Uk (k = i, j), and >-0 E V, such that
Ui x Ui x V c A. Hence Ui >- Uj for each >- E V and therefore >-o E V c ij. "
REMARKS:(1) The choice of Q as the space on which the preferences are defined
is not essential for this theorem (any locally compact second countable space will
do).
(2) The class of sets {Ei,j} is countable. Hence the class of all finite intersections
of members of {J"Ei } is countable. Therefore the topology defined in Theorem 3.1
has a countable basis.
Let us assume now that the preferences satisfy the "desirability" condition.
Let 3 denote from now on the set of all preferences which are derived from com-
plete, reflexive, transitive, and continuous orders and which satisfy the desirability
condition. Every >- E 3 may be represented by a continuous utility u in the follow-
ing way. For each x e Q there exists a vector y on the principal diagonal of Q such
that x y (y exists because of continuity, completeness, and desirability, and is
unique because of desirability). Let u(x) = IYI(IYI is the Euclidean norm of y).
It is easy to see that u is a continuous utility and satisfies the condition u(x) = lxl
for all x on the principal diagonal of Q, and there exists a constant C depending
only on m (the dimension of Q) with 0 < u(x) < Clxl for all x E?Q. Denote by C*
the set of the utilities obtained in this way.
Hence for every x E Si, y E Si, u(x) > uo(x) - 6/2 ) uo(y) + 6/2 > u(y), so that
-0{>:p(>-, >0) < 3/2R} c Eij, and therefore ij is open in the metric
topology.
Let >-0 E, ? > 0. It will suffice to prove that the ball {>:p(>-, >-0) < E} is
open in the minimal topology. Obviously,
U(X) -
Uo(X)<
+ Ix12
in the minimal topology, as we have just seen. We have that x E Ski and >. E R'i
-e < u>(x) - uo(x) < e < lu>,(x)- uo(x)l < e. Hence if >- E nQ= Hi', then
xl R implies lu>-(x)- uo(x)l <e and therefore also max1x1<R(IU>(x) - uO(x)/
A
(1 + IxI 2)) < e. Hence by (3.2), >-o Eni {>- :p(>-, >- 0) < -} and therefore
the ball is open in the minimal topology.
REMARKS: (1) The second part of the proof is analogous to the proof of some
properties of the compact-open topologies.
(2) The metric in (3.1) is in no way "natural." We could have defined C* in
other ways and could have chosen other expressions of the metric which would
have induced the same topology on 3. However we shall use the special form (3.1)
in various subsequent calculations, not merely the fact that we have a "natural"
separable metric topology.
(3) Now that we have a topology on the space of preferenceorders, we may define
' be measurable if the inverse
a function >- -(t): T -+ to image of every open
set in 3 is measurable in T. In fact, this condition is.equivalent to "Aumann-
measurability" ([3]; see also Section 2). It is obvious that the present condition
implies A-measurability. For, if x, y are any measurable Q valued functions, then
{t: x(t) >.- y(t)} {t: 3i,jx(t)e Si A y(t) e Si A >-t e Hij}
{ t: max lut(x)
-
1 u0(x)
xeK +1X12 4
is measurable. Let {xj} be a dense sequence in K. Then
=un n i
tt: Iut(xi)- uo(xj)I
e-n (1 + IXjl2)}
and every set in the last expression is measurable, since it is of the type (3.3).
The main ideas of the proof of Theorem A (in particular the construction of
J(u) and p) are similar to those of Debreu-Scarf [4] and Aumann [3]. However,
the details are much more complicated, since in spite of the fact that z + i(t) >.t x(t)
implies z + in(t) >-t,n Xn(t) for n > N(t) for almost every t, N(t) depends on t. We
have to find subsets of T whose measure is bounded away from zero, on which N
can be found independent of t. We do this using compactness and uniform con-
vergence on those subsets. First we prove a simple lemma.
LEMMA: Let fn(t),f (t) be real measurablefunctions on T, let f (t) be finite a.e. and
let fn(t) -+ f(t) a.e. Thenfor every ( > 0, there exists an M; > 0 and a set A,6c T
with p(A,6)< ( such that Ifj(t)I,If (t)l < Mafor all t 0 Aj andfor all sufficientlylarge n.
PROOF: There exists an M such that p({t:1I f(t)l > M}) <(/2. According to
Egoroff's theorem there exists a set B,6with p(B6,) < 5/2 andfn(t) -+ f(t) uniformly
in T- B,6.Define A6 = B,u {t: If(t)l > M} and M = M + 1, and the lemma is
proved. (The lemma may also be proved without using Egoroff's theorem.)
A:
PROOF OF THEOREM For every z E EM,let us define R(z) = {t: z + i(t) >-t x(t)},
Rn(z) = {t :z + in(t)>-n,t Xn(t)}.Set Z = {z: z is rational and y(R(z)) = 0}. Then
uzeZR(z) is a null set. Define U = T - u zR(z), //(t) = {z: z + i(t) >t x(t)} and
define zl(U) to be the convex hull of u tcuf(t).
Assume, on the contrary, that 0 is an interior point of X(U). Then a whole neigh-
borhood of 0 is contained in J (U). The sets 0(t) are relatively open. Hence there
exist m + 1 rational vectors zi and non-negative rational numbers jti such that
m m
2f gizi = r, r > ?, 2i pti= 1, zi c i(ti), ti c U.
i=O i=O
Then r is also rational and because of desirability, zi E f(ti) implies (zi + r) E i/(ti).
But IT o0i(zi + r) = 0. Therefore we may assume that SITluizi = 0. According to
the definition of U, zi E if(ti) implies 1(R(z1))> 0. There is only a finite number of
i's. Hence there exists a positive K with pu(R(zi)), c for every i. Also, zi + i(t) >-t x(t)
for all t E R(zi). According to the lemma, there exists a set AK/8, a constant No,
and a compact set K in Emsuch that lt(AK/8) < K/8 and x(t), xn(t),zi + in(t)belong
to K for t 0 AK/8 and n > No. According to Egoroff's theorem there exists a set
B with ,u(B) < K/8 such that xj(t) -+ x(t), in(t) + i(t), >-n(t) >-(t) uniformly for
t 0 B. But
-
p(>(t) >-(t)) = max Iun,(X) utx)
Hence it is easily proved that the functions u,(x(t))and u,(zi + i(t)) are measurable.
By the definition of R(zi), u,(zi + i(t)) - u,(x(t)) > 0 for t e R(zi). Therefore there
exists a measurable set Bi c R(z,) and a ( > 0 such that i4(Bi) < K/8 and
(4.1) u,(zi + i(t)) - u,(x(t)) > ( for teR(zi) - Bi.
Set T1= {t: (p(8) < (/4}. Then ? < i' implies TED T and u,T4 = T. Hence
there exists an go with 4u(T- T) < K/8 and
Let R'(zi) = R(zi) n Teo- A/8 - B - Bi. Then 1i(R'(zi))> K/2. xj(t) -+x(t),
ij(t) -+ i(t) uniformly in R'(zi). Hence there exists an N1 such that
(4.3) Ixn(t)- x(t), lin(t)- i(t) < go for n > N1, t e R'(zi).
By (4.1), (4.2), (4.3), and the definition of B, we get for n > max (NO,N1) that
Hence, by (4.3), (4.4), and (4.5), for n > max (NO, N1, N2) and t e R'(zi),
(4.6) Ut,n(Zi + UO(t) - Ut,n(Xn(0)) > ?
Therefore, zi + i(t) >-t,n Xn(t) for t e R'(zi)and for all sufficiently large n, so that
Rn(Zi)D R'(zi). Since there are only a finite number of i's, we have that for large j,
R1(z) n R'(zi) for each i, and especially Iu(Rj(zi)) > K/2.
The ,ui are rational non-negative numbers, and we may write i = si/s where si,
s are non-negative integers. Since (Ij, >-j) is a representation of a finite market,
every set Rj(zi)is a union of sets of the type S(k), each set S(') representing a "trader."
Since y4(S(j))j -+ 0 but u(Rj(zj))> K/2 > 0, we may choose (for j sufficiently
large) s different "traders" for each "coalition" Rj(zi).Let us choose si traders from
each such coalition, and give them the commodity bundle zi + iJ{tk,X)(tk,jeSkj)
RO(zi),1 < k < si). Then
m Si m m Si
Y, E (Zi + ij(tk,i)) = E SiZi + E E ij(tk,i)
i=O k=1 i=0 i=0 k= 1
m m Si m St
= S E JiZi + E E iJ(tk,i) = E Z ij(tk,i).
i=O i=0 k=1 i=0 k=1
Hence we may complete this to an allocation, and zi + ij(ti) >-n xj(ti), contrary
to the assumption that xi is in thef-core of the jth market, and the proposition is
proved.
The proof of Theorem A may now be completed in much the same way as in
[3]: Using f i = f x, one shows that there exists a non-zero vector p such that
x >- x(t) p x > p i(t) (p. x = 0 is the equation of the supporting plane to aI(U)
.
through the origin), and then shows that actually p x > p. i(t) if x >- x(t).
> ~~~~~
n
FIGURE 1
The converse of Theorem B (i.e. lower semi-continuity) is false. Let i(t) _i(t)
(1, 1), let >-t be the preference order whose indifference curves are the lines
xi + x2 = constant, and let >-n(t) be strictly convex preferences converging to >-t.
Then the core of the markets (xn >n) consists of the single allocation xn(t) (1, 1),
whereas every allocation which satisfies xl(t) + x2(t) _ 2 is in the core of the limit-
ing market. (This is another reason why Theorems C and C' are important.)
The definitions of 8-cores in the case of a finite market and the continuity of
preferences imply almost immediately that the core is the intersection of all the
.-cores (8 > 0), since if y >-s x and Yj,syj = Tjhsij, it is possible to find y' near y
which satisfy y >- jes xj and Xjcsy9< lj2sij E e for e sufficiently small.
It is not obvious at all that if (in the continuous case) y(t) >-s x(t), we may find
measurable y'(t)with the properties y'(t)>-s x(t) and fSi dt e e > y' dt. We need, S
in fact, the "principle of borel choice" [2, proposition 2.1] which asserts that if F
is a borel subset (actually less is required) of T x Enwith the property that for every
t E T, {x E En: (t, x) E F} 7 0, then there exists a Lebesgue measurable function
f (t) such that (t, f (t)) E F for every t. (After redefinition on a null set we may choose
f (t) borel measurable.) We shall make constant use of this fact in the discussion
which follows.
THEOREM 5.1: The core is the intersection of all the ordinary 8-cores, and is the
intersectionof all the restricted 8-cores.
PROOF: It is obvious that if x is in the core then x(t) is also in the 8-core, for every
e > 0. Assume that x is in the ordinary 8-core for every 8 > 0, but x is not in the
core. Then there exists a coalition S, u(S)> 0, and there exists a function y: S -+ Q
such that fs y dt = fs i dt and y >- x. For every t E S there exists (by continuity of
preferences)an 8 > 0 such that y(t) e 8 >-, x(t).
We shall show that the set {(t, 8): y(t) e 8 >-, x(t)} is borel measurable in the
product space T x Q. Let {rn} be the sequence of all rational numbers. Define
Tn= {t: y(t) e) rn >- x(t)}. By Aumann measurability Tnis measurable, so that
Tnx (0, rn) and therefore UnTn x (0, rn) are also measurable. If y(t) e9 >-, x(t),
then there exists (by continuity) an rn > 8 with y(t) E rn >- x(t), so that (t, 8) e Tnx
(0, rn). Hence {(t, 8): y(t) E) 8 >-, x(t)} = UnTn x (0, rn)and therefore it is measur-
able.
Using the principle of borel choice we may choose (and redefine suitably)
measurable 8(t) > 0 with y(t) 8(t) >te sx(t). fs 8(t) dt = 8' and 8' is positive, and
eJ
fs [y(t) E9?(t)]dt = fs i dt 9 8'. Hence x does not belong to the ordinary (?'/2)
core, a contradiction. The assertion of the theorem about restricted 8-cores follows
from the fact that the restricted 8-core is contained in the ordinary 8-core.
We shall now prove three lemmas which are needed for the proofs of Theorems
C, D, E, F, and C', D', E', F'. The principal difficulty is that y(t) >- tX(t) [y(t) >- ,n Xn(t)]
implies y(t) >-n,Xn(t) [y(t) >- X(t)] for n > N, but N depends on t, and even the
addition of a constant to the left sides does not improve the matter, unless, as
Lemmas 5.1, 5.2, 5.3 show, the y(t) (x(t)) are restricted to compact sets in Q and the
convergence is uniform. Therefore we have to choose subsets of T, where the desired
properties hold.
LEMMA5.1: Let K be afixed compact set in Q. For every x EcQ, 8 > 0, and >-, there
exist 81 > 0 and 82 > 0 such that
(ii) IX'
-
XI < ?61, P(>_, )< ?2, K -3Y >- X >Y + ?>- X,
PROOF: (i) Define B = {y: y + e x}. Then B is a closed set and therefore
B r- K is compact, and B r- K -< x. Hence {x} x B nrK x {>} c A which is an
open set in the product space (see Theorem 3.1). By a theorem of Wallace [8,
Theorem 5.12] there exist neighborhoods U c 2, Vc 3 with x E U, >- E V4
such that U x B r'K x Vc A. Hence if x'eU, >-'eV, then BrK-<'x' and
therefore K 3 y' >- x' implies y s B, i.e., y + e >- x.
(ii) Define C = {z: z > x,z - e/2e K}. Then C + e/2 is compact and (C +
e/2) x {x} x { >-} c A. Hence there exist neighborhoods U', V', such that
x E U', >- E V', and (C + e/2) x U' x V' c A. Therefore x' E U' and >-'E V'
imply z >-' x' for z E C + e/2. But if K 3 y >- x, then (by desirability) y + e/2 > x
and therefore (y + e) E C + e/2.
Since Q and 3 are metric spaces we may choose el > 0 and 82 > 0 with the
stated properties (i) and (ii).
LEMMA5.2: Let x(t), >-(t) be borel measurable. We may choose e1(t), e2(t) borel
measurable such that (i) and (ii) are satisfied almost everywhere (for x = x(t) and
= >-(0).
PROOF: We shall use the principle of borel choice. Denote by P,(y, x', >') the
proposition
[lx' -x(t)l <el] A [P(>-(t), )< 2] A [K DyS -x']
= [y + e >-(t)x(t)]
and by Pv(y,x', >-') the proposition
[Ilx'-x(t)l < c1] A [P(> (t), )< 82] A [K 3y >- x']
= [y + e/2 >-(t) x(t)].
We have to show that we may choose e1(t),e2(t)from the set
P = {(t,e1,e2):e1 > O, 2 > 0,(VyeK)(Vx'ec2)(V>-'E ,)P(y,x', >')}.
Let {yiJ, {>-'}, {4X} be dense sequences in K, 3, and Q respectively. Then if
(Vyi)(Vx)(V>-'k)Pt(yi, xj, >-') is true, then by desirability
(Vy e K) (Vx' )() >-' eE)Pt(y, x', >-')
is true. Hence the set P contains the set
Q = {(t,1, 82) 1 > 0, 82 > 0, (yi)(VX)(VXj )Pt(Yi, Xj -'})
It suffices to show that Q is measurable. It is well known that p D q -_ pVq
and {z: Vb,Aa(z)}= nQ {z: A,(z)}. Hence
The measurability assumptions of the lemma imply that every set on the right is
borel measurable in the product space. The proof for (ii) is similar.
LEMMA 5.3: Let (i, >), (in, >_n) be continuous markets, in i+ ', >n X+ >, Xn X -+
a.e.; in, i are contained in a weakly sequentially compact set in L1. Then for every
e > 0, 9 > 0, c > 0, there exist a set A c X a positive (, and a compact set K c Q
such that
(1) for every n, fA idt < e, fA indt < e;
(2) xn(t) x+ X(t), in(t) + i(t), >-n(t) -+>-(t) uniformlyfor t s A;
(3) i(t), in(t) E Kfor sufficiently large n and t s A; and
(4) e1(t),e2(t)(which are defined according to Lemma 5.2 for x(t), >- (t), cK, and e)
satisfy e1(t),e2(t) . ( > Ofor t 0 A.,
Lemmas 5.1 through 5.3 are not sufficient to deal with blocking by coalitions
S if fs i dt is not well in the interior of Q, since in that case we have to consider
fs i dt E e and not fs i dt - e. We shall sketch the necessary modifications in the
lemmas, leaving the details to the reader.
Let ek be the kth unit vector in Rm.In modifying Lemma 5.1 we are interested in
the conclusions (i)' y + eek > x for all 1 < k < m, and (ii)' y + eek >-' x' for all
1 < k < m. We define the set B' by B' = {y'; y + eek >_ x for all 1 < k < m} and
obtain the appropriate numbers el and 82in the same way as in Lemma 5.1. It is
easy to choose e1(t) and e2(t) (as in Lemma 5.2), in a measurable way, and then to
have e1(t) and e2(t) bounded away from zero outside a small exceptional set.
6. PROOFSOF THEOREMS
C, D, E, F, AND C', D', E', F'
PROOF OF THEOREMC: Assume that e* > 0 satisfies ,(E) < e* => in dt, SE
fE i dt < e/4, and set C = m/e* (m = dim Q). Let A, K, e1(t),(, M be as in the state-
ment and proof of Lemma 5.3, the constants e and e there being equal to e/4. There
exists a number N such that if n > N, then Ilin(t) - i(t)li, P(>n(t), >(t)),
lIxn(t) - x(t)oo < (, i(t), in(t) E K for t 0 A and IfF in dt - F i dtII < e/4 for every
measurable F c T. We shall show that xn is in the e-core for n > N. Assume that
S is a coalition with 4u(S)> 0; y: S -+ Q is integrable and Y SnS Xn for some
n > N. W.l.o.g. we may assume that there exists a set B c S with 4u(B)< e* and
te S - B > IIy(t)II. C(M + 1).Otherwise there exists a set B c S with 1(B) > 8*
and IIy(t)II> C(M + 1) for t e B. Then at least one coordinate of y is greater than
00
J'y dt$ M + 1.
i dt <
~~ TS
r~~A
Ai dt 0 + I
S-A
i dt < (M + 1)4(S - A) +
40
<M + 1 +-.
4'
Hence
Therefore it is impossible that fS Ydt < fS in dt - 8, and we need not worry about y.
Define B u A = D. Since n > N we have by Lemma 5.3 and the definition of N
that y(t) >-,n Xn(t) for teS - D implies y(t) + e/4 >-,x(t). Hence y(t) + 8/4 >-s-Dx(t).
Since x is in the core of the market (i, >), we conclude that
'
(6.3) { + 4 dt {
(y
S-D -D dt.
Obviously,
Moreover, SDi dt =
fA i dt + SB i dt < (8/4) + (8/4) = (2/4)e (since 4(B) < 8*), and
therefore,
From (6.3), (6.4) and (6.5) it follows that fS y dt + (3/4)e $f i dt, i.e.,
(6.6) JY dt i
J'idt - 38.
PROOF OF THEoREmC': W.l.o.g. assume that there exists a constant C such that
IIx(t)I, IIij(t)
IIxj(t)11K, II, < C. Let an 8 > 0 be given. Set K = {ye2Q,
II, IIi(t)
< (2C2m/g) + C}. Then K is compact. Set inffeT,zeKIuU(z
IIYIIOO + e/4) - u,(z)l = 6.
There exists a sequence {ti4, {zi4 with ut,(zi + g/4) - u,,(zi)-+ 6. Since K is compact
and since { >-: 3(t e T) >- (t) = > } is a conditionally compact set, we may assume
that z e K, >- e exist with >.- , zi -+ z. Hence u5(z + e/4) - u-(f) = 6,
-
ydt
y0 |.t y dt > /u(D') C p
C(S) )t indt |
6
(6.9) IUt,.(X.(t)) - Ut(Xn(t))l< 3;
But
+ - + -
-Ut,n(Y(t)) Utm,(y(t)) Ut,n(Xn(t)) Ut,n(xn(t)) Ut(Xn(t))
+ ut(xn(t)) - Ut(X(t))
It follows from (6.7H6.10) and y >-nB xn that ut(y(t) + e/4) - ut(x(t)) > 0, or that
.
(6.1 1 ) x t. +
But IS-B i dtIloo < C4(S - B) < C (8/2C)1.(S)= (?/2)8(S) and IlIfs
indt-
fs i dt I < (e/4)/(S), so that
F: By
PROOF OF THEOREM Theorem C it suffices to prove the existence of in, Xn,
>n zwith in -?i, xn x, >- n,-+ >-, and JT indt = STXndt = JT i dt, in(t),xn(t),i(),
-+
x(t) < z(t) a.e., (and in, Xn, >.-n are simple), since then in ~xn, i, x are contained in a
weakly sequentially compact set in L1. Since E is a separable metric space, we may
show as in [7, p. 36] that there exists a sequence of simple functions { >n(t)} with
>40 (t+>-(t) a.e. (In [7] this theorem is stated for B-space valued functions, but the
same proof works for functions with values in separable metric spaces.) It is easy
to construct in(t),xn(t),having the required properties.
+ ut(xn(t)) - Ut,n(Xn(t))
for t in a set B chosen as in the proof of Theorem C', we find (for n > N) from (6.7)-
(6.10) that y(t) + e/4 >- nB xn(t). Since xn(t) is in the restricted a'-core of (in, >- n),
it follows that
8
y(t) + dt $;j'i dt - a'y(B).
An argument similar to the argument at the end of the proof of Theorem C' yields
the conclusion of Theorem D'.
for t e B (here u1,t is the utility function of >- 1(t)), and observing that analogous
inequalities to (6.7)-(6.9) hold for (i, >) e U, we find that y(t) + 8(4 >-1B x(t) and
the theorem follows.
The proof of Theorem F' is similar to the proof of Theorem F (but simpler) and
will be omitted.
G. Debreu has remarked that there exists a serious difficulty in the application
of the continuous model to the (finite) economic situation. It may occur that (i, >-),
(1, S) describe the same economic situation, but their cores are not equivalent.
Suppose, for example, that in the economy there are two types of commodities
and that all the traders have the same preference order >-, whose indifference
curves are shown in Figure 2.
x,
FIGURE 2
x2
1 2 XI
FIGURE 3
i( ) ={ 1+ 2t if t > ,
x2(t) = 2 + 2t
is in the core.
The heavy segment in Figure 3 shows the initial assignment i(t), each point on the
segment representing the commodity bundle of two traders, and the dashed seg-
ments represent x(t) (each point on these segments is the commodity bundle of
one trader).The vector (1, 1) is a price vector.
FIGURE 4
Now let !,(t) -1 + t, j = 1, 2. Every point on the heavy segment is the com-
modity bundle of one (and only one) trader. No equilibrium allocation of this
market is such that both the dashed segments represent commodity bundles held
by traders. For, if (p, X(t))is a competitive equilibrium, the X(t) is on the line {y:
p *y = p l(t)} and this line intersects the heavy line only once. Hence if one of the
dashed lines is in the image of X(t), then every point on the heavy line was used,
so that none of the points of the second line is obtained. (See Figure 3.)
Thus we have two markets which represent the same economic situation, for
we have no reason to prefer i(t) to l(t) when we want to describe a uniform distribu-
tion of goods in the initial state, even if we may regard the market as the union of
two markets. We see that there exists an allocation in the core of one of the models
with no allocation in the core of the other model having the same distribution of
commodity bundles. It is not difficult, however, to see that there is a sequence X'(t)
of equilibrium allocations of (i, S) such that the distributions of the xF(t)tend to the
uniform distribution (see Figure 4).
This fact led R. J. Aumann to the following conjecture.
Conjecture: If (i, >-), (i, VII)represent the same economic situation and if x is an
allocation in the core of (i, >-), then there is a sequence X, of allocations in the core
of (i, ;) whose distributions converge to the distribution of x.
Before attempting to prove such a conjecture, we have to define precisely when
(i, >-) and (l, :) represent the same economic situation (or have the same distribu-
tion). This is not obvious if >-(t) is not a constant (as it was in the preceding
example). However, we shall give a definition here, and we will prove the existence
of a sequence xn(t) in the restricted c-core of (i, S) converging in distribution to
x(t) (assuming that i is essentially bounded and >-(t) is contained in a compact set).
DEFINITION:Let S be a topological space and f, g: T -+ S be measurable. We
say thatf and g have the same distribution if for every open U c S, ,u(f - '(U)) =
1(g- '(U)).
Let f: T -+ S be measurable. Denote by uf-' the measure defined on the borel
subsets of S by ,uf- '(V) = p(t E T: f (t) E V) for a borel subset V c S.
LEMMA 7.1: Let S be a metric space and let f, g: T -+ S be measurable. Then f
and g have the same distribution if and only iffor every real valued, continuous,and
boundedfunction p defined on S, fS p dluf-' = fs p dug- '.
PROOF: If f and g have the same distribution then for every open U c S,
(f-'(U)) f= 1u(-'(U)) and therefore 1,uf-(U) = g-'(U) for every borel U, so
that jif- ' g,g'- and fs5pduf -' = fs(pdMg '. Assume that fsJ dif'- =
'
psPd,ug- for every bounded, continuous, and real valued p defined on S, and let U
be an open subset of S. Define x(x) = max [1 - p(x, S - U), 0]. Then X is real
valued, continuous, and bounded, X(x) = 1 if and only if p(x, S - U) = 0, i.e.,
if and only if x ? U (since S - U is closed). If x E U, then 0 < X(x) < 1. Hence
1 - [X(x)]nn-, Xu(x),where Xu(x)is the characteristic function of U.
But
(1 - [X(X)1n)
dug 1 = f (1 - [X(g(t))],)dt
LEMMA 7.2: Let S be a metric space, let fn, f, gn: T S be measurable,let fn, gn
have the same distribution,and letfn f a.e. Then gn f in distribution.
PROOF: By Lemma 7.1, fs p dmf,7' = fsp dgg- for every continuous and
bounded p: S -+ R. Hence it suffices to show that
J pdjif -n
X dff.
p
But
fp dltf7' = T
p(fn(t)) dt, djf -1 = p(f(t))dt
and since p is continuous, p(fn(t)) -(+p(f (t)) a.e. in T, and since p is bounded we
may use Lebesgue's dominated convergence theorem to see that ST(p(fn(t))dt
f TP(f (t)) dt.
The two markets (i, >-), (i, 5) have the same distribution if the functions (i, >):
T -Q ? x 3, (i, S): T -* Q x 3 have the same distribution. (It is clear that 2 x 3
is a metric space since Q and 3 are metric spaces). Let x be an allocation in the core
of (i, >-), so that there exists a price vector p such that (p, x(t)) is a competitive equili-
brium. We assume that i is essentially bounded, i.e., there exists a constant M
with Ii(t)l< M a.e. (This is no serious restriction if we deal with models of actual
markets.) Then the sets {y eQ2:p y < p i(t)} are bounded a.e. since p > 0,
[3, p. 46] and therefore x(t) is also essentially bounded. By Theorem F' there exist
,,xn n >-fnwithfT indt = STi dt, in i, >-n
in >-a.e. and for every E> O, xn isin the
restricted s-core of (in, >-n), and n, >-n are simple functions. By Theorem F' in, Xn
are uniformly essentially bounded. According to the construction of (in >n) (see
the proof of Theorem F and [7]), it is clear that there exist simple (in, n) having
the same distribution as (in, >-n) and in -? 1,7n a.e. In fact, for every n there
exists an automorphism Un of T onto itself such that ln(t) = in(Un(t)), Sn(t) =
>n(Un(t)). Define xn(t) by Xn(t) = xn(Un(t)). Then STXndt = STXndt = T in dt =
ST idt = ST i dt, and for every E > 0, xn is in the restricted s-core of the market
(in, i;n) for large n. Hence, by Theorem E', Xn is in the restricted s-core of (1, S)
for large n, and by Lemma 7.2 xn -+ x in distribution.
Note that if we do not assume that ;(t) is contained in a compact set, we get a
sequence Xn(t)of allocations in the ordinary s-core of (i, >-) (assuming still that i is
essentially bounded).
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