Decentralization in Non-Convex Economies with Externalities

We consider a pure exchange economy with externalities. Individual preferences are affected by the consumption of all other agents in the economy, and to each agent i is exogenously associated a nonempty set Ai, representing the individuals agent i cares about.We adopt a cooperative approach to equilibrium analysis, allowing each individual to cooperate with others and to form coalitions. Following Vasil’ev (2016), Husseinov (1994) and Graziano (2001), we study a notion of generalized fuzzy core and show that, in the case of non-convex preferences, the set of coalitions can be enlarged in such a way that a core allocation can be supported as an A-equilibrium by some price system. In the second part of the paper, we consider an economy with Arrowian markets for consumption externalities. For an appropriate definition of generalized fuzzy core, we show that a core allocation can be decentralized as an Information equilibrium in terms of personalized and market prices.