Equilibrium of a production economy with non-compact attainable allocations set

: In this paper, we consider a production economy with an unbounded attainable set where the consumers may have non-complete non-transitive preferences. To get the existence of an equilibrium, we provide an asymptotic property on preferences for the attainable consumptions and we use a combination of the non-linear optimization and fixed point theorems on truncated economies together with an asymptotic argument. We show that this condition holds true if the set of attainable allocations is compact or, when the preferences are representable by utility functions, if the set of attainable individually rational utility levels is compact. This assumption generalizes the CPP condition of [N. Allouch, An equilibrium existence result with short selling, J. Math. Econom. 37 (2002), no. 2, 81–94] and covers the example of [F. H. Page, Jr., M. H. Wooders and P. K. Monteiro, Inconsequential arbitrage, J. Math. Econom. 34 (2000), no. 4, 439–469] when the attainable utility levels set is not compact. So we extend the previous existence results with non-compact attainable sets in two ways by adding a production sector and considering general preferences.


Introduction
Since the seventies, with the exception of the seminal paper of Mas-Colell [14] and a first paper of Shafer and Sonnenschein [18], equilibrium for a finite-dimensional standard economy is commonly proved using explicitly or implicitly equilibrium existence for the associated abstract economy (see [3,8,9,12,17,19]) in which agents are the consumers, the producers and an hypothetical additional agent, the Walrasian auctioneer.Moreover, in exchange economies it is well known that the existence of equilibrium with consumption sets that are not bounded from below requires some non-arbitrage conditions (see [2, 4-7, 13, 20]).In [7], it is shown that these conditions imply the compactness of the individually rational utility level set, which is clearly weaker than assuming the compactness of the attainable allocation, and Dana, Le Van and Magnien prove an existence result of an equilibrium under this last condition.
The purpose of our paper is to extend this result to finite-dimensional production economies with noncomplete, non-transitive preferences, which may not be representable by a utility function.Furthermore, we also allow the preferences to be other regarding in the sense that the preferred set of an agent depends on the consumption of the other consumers.We posit the standard assumptions about the closedness, the convexity and the continuity on the consumption side as well as on the production side of the economy like in [9], and a survival assumption.We only consider quasi-equilibrium and we refer to the usual interiority of initial endowments or the irreducibility condition to get an equilibrium from a quasi-equilibrium (see, for example, [9,Section 3.2]).
The non-compactness of the attainable sets appears naturally in an economy with financial markets and short-selling.Using Hart's trick [13], we can reduce the problem to a standard exchange economy when the financial markets are frictionless.But if there are some transaction costs, intermediaries like clearing house mechanisms or other kind of frictions, this method is no more working and we then need to introduce a production sector to encompass these frictions.That is why we add in this paper a production sector, which is also justified if we want to analyze a stock market where the payments of an asset depend on the production plan of a firm.
Considering non-complete, non-transitive preferences allows us to deal with Bewley preferences where the agents have several criterions and a consumption is preferred to another one only if all criterions are improved.Such preferences are not representable by utility functions.They appear naturally in financial models where the objective is to minimize the risk according to some consistent measures.
Our main contribution is to provide a sufficient condition (H3) to replace the standard compactness of the attainable allocation set, which is suitably written to deal with general preferences.More precisely, we assume that for each sequence of attainable consumptions there exists an attainable consumption where the preferred consumptions can be approximated by preferred consumptions of the elements of the sequence.Actually, we also restrict our attention to the attainable allocation, which are individually rational, in a sense adapted to the fact that preferences may not be transitive.The formulation of our assumption is in the same spirit as the CPP condition of Allouch [1].
We prove that our condition is satisfied when the attainable set is compact and when preferences are represented by utility functions and the set of attainable individually rational utility levels is compact.So, our result extends the previous ones in the literature.Our asymptotic assumption is weaker than the CPP condition within the framework considered by Allouch where preferences are supposed to be transitive with open lower-sections.
To compare our work with the contribution of Won and Yannelis [21], we provide an asymmetric assumption (EWH3) for exchange economies which is less demanding for one particular consumer.We are not pleased with this assumption since the fundamentals of the economy are symmetric and there is no reason to treat a consumer differently from the others.Won and Yannelis' condition and (EWH3) are not comparable and both of them cover the example of Page, Wooders and Monteiro [15].Nevertheless, neither of these conditions covers [21,Example 3.1.2].So, there is room for further works to provide a symmetric assumption covering both examples.
We also remark that our condition deals only with feasible consumptions and not with the associated productions.So, our condition can be identically stated for an exchange economy or for a production economy.This means that even if there exist non-compact feasible productions, an equilibrium still exists if the attainable consumption set remains compact.In other words, the key problem comes from the behavior of the preferences for large consumptions and not from the geometry of the production sets at infinity.
To prove the existence of a quasi-equilibrium, we use several tricks borrowed from various authors.Using a truncated economy in order to apply a fixed point theorem to an artificial compact economy is an old trick as in the first equilibrium proofs.We apply our assumption on the asymptotic behavior of preferences to a sequence of quasi-equilibrium allocations in growing associated truncated economies.We prove that the attainable consumption given by Assumption (H3) is a quasi-equilibrium consumption of the original economy.The originality of the proof is mainly contained in Section 4.

The model
In this paper, we consider the private ownership economy: where L is a finite set of goods so that ℝ L is the commodity space and the price space, I is a finite set of consumers, and each consumer i has a consumption set X i ⊂ ℝ L and an initial endowment ω i ∈ ℝ L .The tastes of this consumer are described by a preference correspondence P i : ∏ k∈I X k → X i , where P i (x) represents the set of strictly preferred consumption to x i ∈ X i given the consumption (x k ) k ̸ =i of the other consumers.Furthermore, J is a finite set of producers and Y j ⊂ ℝ L is the set of possible productions of firm j ∈ J.For each i and j, the portfolio of shares of the consumer i on the profit of the producer j is denoted by θ ij .The θ ij are nonnegative and for every j ∈ J, one has ∑ i∈I θ ij = 1.These shares together with their initial endowment determine the wealth of each consumer.
We denote by A(E) the set of attainable allocations.
In this paper, we are only dealing with the existence of quasi-equilibrium.We refer to the large literature on irreducibility, which provides sufficient conditions for a quasi-equilibrium to be an equilibrium.The simplest one is the interiority of the initial endowments linked with the possibility of inaction for the producers.Definition 2.2.A quasi-equilibrium of the private ownership economy is a pair of an allocation and a non-zero price vector p ̸ = 0, such that the following conditions hold: (a) (Profit maximization:) For every j ∈ J and every y j ∈ Y j one has p ⋅ y j ≤ p ⋅ ȳ j .(b) (Quasi-demand:) For each i ∈ I, one has that Notice that, in view of condition (c), condition (b) can be rephrased as Before stating the assumptions considered on E, let us introduce some notations: • ω = ∑ i∈I ω i is the total initial endowment.
• Y = ∑ j∈J Y j is the total production set.• X = {x ∈ ∏ i∈I X i : there exists y ∈ Y such that ∑ i∈I x i = ω + y} is the set of all attainable consumption allocations.• Ŷ = {y ∈ Y : there exists x ∈ ∏ i∈I X i such that ∑ i∈I x i = ω + y} is the attainable total production set.
In this paper, we consider the following hypothesis.
Assumption (H1).For every i ∈ I, the following conditions hold: (a) X i is a non-empty, closed, convex subset of ℝ L .(b) (Irreflexivity:) For all x ∈ ∏ i∈I X i , one has x i ∉ co P i (x) (the convex hull of P i (x)).
(e) For each x ∈ X, one has P i (x) ̸ = 0.
Assumption (H2).The set Y is a non-empty, closed and convex subset of ℝ L .
To overcome the fact that we do not assume local non-satiation, but only non-satiation, we introduce the definition of "augmented preferences" as in [10,11].We can avoid the use of augmented preferences if Assumption (H1) (e) is replaced by the assumption that x i belongs to the closure of P i (x): H3).For all sequences ((x ν i )) of X such that for all i, one has there exists a subsequence ((x )) ∈ X and ( x i ) ∈ X such that for all i and all ξ i ∈ Pi ( x ) there exist an integer ν 1 and a sequence (ξ ) ν≥ν 1 convergent to (ξ i ) such that for all ν ≥ ν 1 and all i ∈ I, one has Closedness and convexity are standard assumptions on consumption and production sets.They imply in particular that commodities are perfectly divisible.Assumption (H1) (c) is a weak continuity assumption on preferences.Assumption (H1) (b), i.e. the irreflexivity, is made on the sets co P i (x) to avoid to assume the convexity of the preference correspondences P i .Assumption (H1) (d) implies that by using his own shares in the productive system, consumer i can survive without participating in any exchange.This implies that no trader will be allowed to starve no matter what the prices are.It also insures that the set A(E) is non-empty.Usually, in exchange economies, this assumption is merely written as ω i ∈ X i , which corresponds to ω i = x i and y i,j = 0 for all j.Assumption (H1) (e) assumes, for every i, the insatiability of the i-th consumer at any point of his attainable consumption set.
Assumption (H3) is an attempt to weaken the compactness assumption on the global attainable set A(E).A large literature tackles this question by considering what is called a non-arbitrage condition (see, for example, [2,4,6,7]).Our work is much in the spirit of Dana, Le Van and Magnien [6,7] considering a compact set of attainable utility levels as generalized by Allouch [1].But we remove the transitivity assumption on preferences like in [21].We discuss in detail the relationships with these contributions in Section 5.
We assume that for each sequence of attainable consumptions there exists an attainable consumption where the preferred consumptions can be approximated by preferred consumptions of the elements of the sequence.Indeed, the element x of X is not necessarily a cluster point of the sequence (x ν ), but any element strictly preferred to x by any agent is approachable by a sequence of elements strictly preferred to (x φ(ν) ).This condition imposes some restriction on the asymptotic behavior of the preferences for attainable allocations in the sense that some preferred elements remain at a finite distance of the origin even if the allocation is very far.
Note that the productions are not considered in Assumption (H3).So, only the total production set matters since it determines the attainable consumptions.The fact that some unbounded sequences of individual productions can be attainable does not prevent the existence of an equilibrium as long as the total production set is not modified.
Example 2.3.We present an example of an exchange economy where Assumption (H3) is satisfied while the attainable set is not bounded and the preference correspondences are not representable by utility functions.Then we extend it to a production economy with a class of production sets.Let us consider an exchange economy with two commodities A and B and two consumers.The consumption sets are given by

The attainable allocations set A(E) of the economy is then
We consider the continuous function Π : ).
The preference correspondence is the same for the two consumers and it is defined by One easily checks that Assumption (H1) is satisfied by the preference relations since Π is continuous, so P i has an open graph and Π(a, b) ≫ (0, 0), and thus the local non-satiation holds true everywhere.We remark that if If it has a bounded subsequence, then this subsequence has a cluster point (( ā 1 , b 1 ), ( ā 2 , b 2 )).Then the desired property of Assumption (H3) holds true thanks to the fact that the preference correspondences have an open graph.See the proof of Proposition 5.1 (i).
If the sequence is unbounded, we note that the sequences So, there exists a subsequence ((a 2 )) such that the sequences (a Let us consider the attainable allocation We remark that ), ).
We now consider a finite collection of production sets (Y j ) j∈J of ℝ 2 such that Y = ∑ j∈J Y j is closed, convex, contains 0 and y A + y B ≤ 0 for all (y A , y B ) ∈ Y. Let us consider the production economy where the consumption sector is as above, the production sector is described by (Y j ) j∈J and the portfolio shares (θ ij ) are any ones satisfying the standard conditions.One easily checks that Assumption (H3) is satisfied by this production economy since the attainable consumption set is smaller or equal to the one of the exchange economy.The main result of this paper is the following existence theorem of a quasi-equilibrium for a production economy.

Preliminary results
First, we show that some properties of the preference correspondences P i are still true for P i .
Proposition 3.1.Assume that X i is convex for all i. (i) If P i is lower semicontinuous on ∏ i∈I X i , then the same is true for P i .(ii) P i (x) has convex values.Furthermore, if x i ∉ co P i (x) for all x i ∈ X i , then x i ∉ P i (x).
Proof.(i) Let x ∈ ∏ i∈I X i and let V be an open subset of X i such that Then there exists ξ i ∈ Pi (x) ∩ V, which means that Since the correspondence P i is lower semicontinuous, co P i is lower semicontinuous (see [9, p. 154]).Consequently, there exists a neighborhood W of x in ∏ i∈I X i such that Thus, for all x  ∈ W, there exists Then one gets ξ  i ∈ B(ξ i , ϵ) ⊂ V. Hence, ξ  i ∈ Pi (x  ) ∩ V, which proves the lower semicontinuity of P i .(ii) Let x ∈ ∏ i∈I X i and z i , z  i ∈ Pi (x) be such that for some λ, β ∈ ]0, 1] and ξ i , ξ  i ∈ co P i (x).For α ∈ ]0, 1[, we have where One easily checks that γ ∈ ]0, 1] since λ, β ∈ ]0, 1] and , which means that Pi has convex values.
Finally, we prove the irreflexivity by contraposition.Let us suppose that x i ∈ P i (x) for some i.Then . Hence, we have x i = x  i ∈ co P i (x), which contradicts Assumption (H1) (b).Now, we consider the following economy: where the preference correspondences are replaced by the augmented preference correspondences and the production sets are replaced by their closed convex hull, that is, Y  j = coY j for each j.
Lemma 3.2.Under Assumption (H2), the economies E and E  have the same total production set so the same attainable consumption set X.
In other words, condition (c) of Definition 2.2 is satisfied.Moreover, one can remark that ȳ ∈ Y  j for every j.Consequently, p ⋅ ȳ j ≤ p ⋅ ζ j .But since ∑ j∈J ζ j = ∑ j∈J ȳ j , one gets p ⋅ ȳ j = p ⋅ ζ j .We now show that condition (a) is satisfied.Let j ∈ J and y j ∈ Y j .Then y j ∈ Y  j , so p ⋅ y j ≤ p ⋅ ζ j = p ⋅ ȳ j .Hence, p ⋅ y j ≤ p ⋅ ȳ j and condition (a) of Definition 2.2 is satisfied.
Lastly, we show that condition (b) is satisfied.Since p ⋅ ζ j = p ⋅ ȳ j for all j ∈ J, we have for all i.Now, let i ∈ I and x i ∈ X i be such that x i ∈ P i ( x ).Since P i ( x ) ⊂ Pi ( x ), we obtain p ⋅ x i ≥ p ⋅ x i .

Existence of quasi-equilibria
In this section, we consider the economy E  as defined above.We have seen in the previous section that we can deduce the existence of a quasi-equilibrium of E from a quasi-equilibrium of E  .

Assumption (H1').
For every i ∈ I, the following conditions hold: (a) X i is a non-empty closed, convex subset of ℝ L .(b) (Irreflexivity:) For all x ∈ ∏ i∈I X i , one has x i ∉ Pi (x).(c) (Lower semicontinuous:) Pi : ∏ k∈I X k → X i is lower semicontinuous and convex-valued.(d) ω i ∈ X i − ∑ j∈J θ i,j Y  j , i.e. there exists (e) For each x ∈ X, one has Pi (x) ̸ = 0, and for all ξ i ∈ Pi (x) and all t ∈ ]0, 1], one has tξ i + (1 − t)x i ∈ Pi (x).

Assumption (H2'
).The set Y  j is a closed, convex subset of ℝ L for each j ∈ J.
To prepare the discussion on the relationships with the paper of Won and Yannelis, we consider the following weakening of Assumption (H3).If A is a subset of ℝ L , cone A is the cone spanned by A.

Assumption (WH3).
There exists a consumer i 0 such that for all sequences ((x ν i )) of X with for all i, there exist a subsequence ((x φ(ν) i )) ∈ X and ( x i ) ∈ X with the condition that for all i and all ξ i ∈ Pi ( x ) there exist an integer ν 1 and a sequence (ξ and for all i Assumption (WH3) is clearly weaker than (H3) since But this assumption exhibits the drawback of being asymmetric.That is why we did not emphasize it before since we think that further works should provide an even weaker but symmetric assumption.We provide more comments in Section 5 when we discuss the link to the work of Won and Yannelis.We now state the existence result of a quasi-equilibrium for a finite private ownership economy satisfying Assumptions (H1'), (H2') and (WH3).The idea of the proof is as follows: We first truncate consumption and production sets with a closed ball with a radius large enough.Following an idea of Bergstrom [3], we modify the budget sets in such a way that they coincide with the original ones when the price belongs to the unit sphere.Then, by applying the well-known result of Gale and Mas-Colell [11] and Bergstrom [3] about the existence of maximal elements to a suitable family of lower semicontinuous correspondences, we obtain a sequence ((x ν ), (y ν ), p ν ) such that ((x ν ), (y ν )) is an attainable allocation of the economy A(E  ), p ν belongs to the unit ball of ℝ L , the domain of admissible prices, the producers maximize the profit over the truncated production sets, and the consumptions are maximal elements of the preferences on the truncated consumption sets, but with a relaxed budget constraint.From Assumption (WH3) and the compactness of the price set, we obtain a subsequence (x φ(ν) , y φ(ν) , p φ(ν) ) and an element ( x , ȳ , p ) such that the preferences at this point are close to the preferences at x φ(ν) for ν large enough and p φ(ν) converges to p .Finally, we prove that ( x , ȳ , p ) is a quasi-equilibrium of E  .Note that the difficulty of the limit argument comes from the fact that ( x , ȳ ) is not necessarily the limit of (x φ(ν) , y φ(ν) ).

The fixed-point argument
From Assumption (H1') (d), let us fix x i ∈ X i and y i,j ∈ Y  j such that for every i ∈ I. Let Bν be the closed ball with center 0 and radius ν with ν large enough so that ω, x i , y i,j and ω i belong to B ν , the interior of Bν , for all i, j.We consider the truncated economy obtained by replacing agent's consumption sets by X ν i = X i ∩ Bν for all i ̸ = i 0 , and The closed unit ball B = {x ∈ ℝ L : ‖x‖ ≤ 1} will be the price set.The truncation of X i 0 is chosen in such a way that if (x, y) ∈ ∏ i∈I X ν i × ∏ j∈J Y ν j is feasible, that is, ∑ i∈I x i = ω + ∑ j∈J y j , then x i 0 belongs to the open ball B (♯I+♯J)ν .
We now consider the economy where the consumption and production sets are compact.
Remark 4.2.For all i, the correspondence Pν i is lower semicontinuous.Indeed, Pν i is the intersection of the lower semicontinuous correspondence Pi and the constant correspondence B ν (or B (♯I+♯J)ν ), which has an open graph.
Remark 4.3.With the above remark and since Bν is convex and closed, note that the compact economy E ν satisfies Assumption (H2') and Assumption (H1'), but not the non-satiation of preferences at attainable allocations.Furthermore, Y ν j is now compact.
Since each Y ν j is compact, we can define for every p ∈ B the profit function and the wealth of consumer i is defined by Note that the function π ν j : B → ℝ is continuous since it is finite and convex.In what follows, we will use the following notations for simplicity Let now N = I ∪ J ∪ {0} be the union of the set of consumers I indexed by i, the set of producers J indexed by j, and an additional agent 0 whose function is to react with prices to a given total excess demand.For all i ∈ I, we define the correspondences α ν i : Z ν → X ν i and βν i : Z ν → X ν i as follows: From the construction of the extended budget set, one checks that for all i the consumption x i belongs to βi ν (z) if x i ∉ α ν i (z).Indeed, from (H1') (d), which means that x i belongs to βi Now, for i ∈ I, we consider the mapping ϕ ν i defined from Z ν to X ν i by For j ∈ J, we define ϕ ν j from Z ν to Y ν j by and the mapping ϕ ν 0 from Z ν to B is defined by Now we will apply to Z ν and the correspondences (ϕ i ) ν i∈I , (ϕ j ) ν j∈J and ϕ ν 0 the well-known theorem of Gale and Mas-Colell [11].We will actually use the Bergstrom version of this theorem in [3], which is more adapted to our setting.Theorem 4.5 ([3, 11]).For each k = 1, . . ., k , let Z k be a non-empty, compact, convex subset of some finitedimensional Euclidean space.Given Z = ∏ k k=1 Z k , for each k, let ϕ k : Z → Z k be a lower semicontinuous correspondence satisfying z k ∉ co ϕ k (z) for all z ∈ Z. Then there exists z ∈ Z such that for each k = 1, . . ., k , one has ϕ k ( z ) = 0.
For the correspondences (ϕ ν j ) j∈J and ϕ ν 0 , one easily checks that they are convex-valued, irreflexive and lower semicontinuous since they have an open graph.
We now check that for all i ∈ I the correspondence ϕ ν i satisfies the assumptions of Theorem 4.5.We first remark that ϕ ν i is convex-valued since βν i and Pi are convex.We now check the irreflexivity.If For the lower semicontinuity, let V be an open set and let z be such that Since γ ν i is continuous, there exists a neighborhood W of z such that p  ⋅ x  i > γ ν i (z  ) for all z  ∈ W. Since βν i has an open graph, there exists a neighborhood W  of z such that βν i (z  ) ∩ V ̸ = 0 for all z  ∈ W  .So, ϕ ν i (z  ) ∩ V ̸ = 0 for all z  ∈ W ∩ W  , and consequently ϕ ν i is lower semicontinuous at z.If x i ∈ α ν i (z), we first remark that βi ν ∩ Pν i is lower semicontinuous as an intersection of a lower semicontinuous correspondence with an open graph correspondence.So, there exists a neighborhood W of z such that βi ν (z  ) ∩ Pν i (x  ) ∩ V ̸ = 0 for all z  ∈ W. This implies that βi ν (z  ) ∩ V ̸ = 0. Hence, in both cases x  i ∈ α ν i (z  ) or x  i ∉ α ν i (z  ), we obtain ϕ ν i (z  ) ∩ V ̸ = 0 from the definition of ϕ ν i .Thus ϕ ν i is also lower semicontinuous at z in this case.

The limit argument
We first show that we can apply Assumption (WH3) to the sequence (( x ν i )) built in the previous subsection.We have already proved that x ν is attainable in the truncated economy E ν , so it is also attainable in the economy E  .It remains to show that for all i.
and for i 0 there exist α ≥ 0 and From (4.4) and (4.5), For ν large enough, y j ∈ Bν for all j ∈ J. So, (y j ) ∈ ∏ j∈J Y ν j , and from (4.2) one gets In particular, for ( ȳ j ) ∈ ∏ j∈J Y  j , one gets In an exchange economy with the survival assumption ω i ∈ X i for all i, the set U is just the set of individually rational attainable consumptions.The proof of this proposition as a consequence of the lower semicontinuity of preferences for (i) and the utility representation for (ii) is left to the reader.

Comparison with the CPP condition of Allouch
We recall the following definition of the CPP condition considered by Allouch [1].
Beside this assumption, Allouch also assumes that the preference relations are transitive, have open lowersection and that the augmented preferences are equal to the preferences.Assumption (H3) and the CPP condition have the same flavor, but the transitivity allows us to consider a unique sequence (ξ φ(ν) i ) whereas Assumption (H3) needs a sequence for each preferred element.The proof is a direct consequence of the transitivity of preferences and the open lower-section, which allow us to get the desired property under the CPP condition.

Comparison with the work of Won and Yannelis
To compare our contribution to the one of Won and Yannelis [21], we restrict our attention to an exchange economy.Indeed, the initial endowments ω i are used as a reference point on the budget line and there is no equivalent consumption in a production economy.The frameworks and the basic assumptions are quite similar and we focused our attention on the asymptotic condition corresponding to our Assumption (H3).To state it, we borrow the following notations from [21]: for x ∈ ∏ i∈I X i and all i ∈ I, we set r i (x) = max{‖x k ‖ | k ̸ = i}, and B(0, r) denotes the closed ball of center 0 and radius r.We now state Assumption (B7a) of Won and Yannelis.
We first remark that Assumption (H3) does not require the sequence (y φ(ν) ) and the inclusion of the associated preferred set, or a truncation of it, in a set generated by the preferred set of x φ (ν) .Indeed, our assumption has the flavor of the CPP condition of Allouch.

Proposition 5 . 1 .
Under Assumption (H1), the following assertions hold:(i) If A(E) is compact, then (H3) is satisfied.(ii)If the preferences of all consumers are represented by a utility function satisfying Assumption (H4) and if U is compact, then Assumption (H3) is satisfied.

Proposition 5 . 3 .
Let us assume that the preference relations are transitive, have open lower-section and are equal to the augmented preferences.Then if the CPP condition is satisfied, Assumption (H3) holds true.