| Abstract: We propose a market solution to the problem of resource allocation
subject to constraints, such as considerations of diversity or geographical distribution. Constraints give rise to pecuniary externalities, which are internalized via
prices. Agents pay to the extent that their purchases affect the value (at equilibrium prices) of the relevant constraints. The result is a constrained-efficient
market equilibrium outcome. The outcome is fair whenever the constraints do not
single out individual agents, which happens, for example with geographical distribution constraints. In economies with endowments, moreover, we can address
participation constraints. Our equilibrium outcomes are then constrained efficient
and approximately individually rational. |
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