The transfer paradox in welfare space

Demuynck, Thomas;De Rock, Bram;Ginsburgh, Victor
(2016) Journal of Mathematical Economics — Vol. 62, p. 1-4 (2016)

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  • Demuynck, ThomasUniversiteit Maastricht
    Author
  • De Rock, BramUniversité libre de Bruxelles
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  • Ginsburgh, VictorUniversité libre de Bruxelles and CORE
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Abstract
The transfer paradox describes a situation in which a transfer of endowments between two agents results in a welfare decrease for the recipient and a welfare increase for the donor. It is known that in a two-agent regular exchange economy with an arbitrary number of goods, the transfer paradox occurs only if the price equilibrium is unstable. In this paper, we show that in the space of welfare weights, the set of stable equilibria and the set of no-transfer paradox equilibria coincide. As a corollary we also obtain that for two agents and an arbitrary number of goods, the index of an equilibrium in price space coincides with its index in welfare space.
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Demuynck, T., De Rock, B., & Ginsburgh, V. (2016). The transfer paradox in welfare space. Journal of Mathematical Economics, 62, 1-4. https://doi.org/10.1016/j.jmateco.2015.10.006 (Original work published 2016)