Competitive equilibria and the grand coalition

This paper provides a new characterization of competitive equilibrium allocations based on the veto mechanism. The main theorem shows that, in pure exchange economies with a continuum of non-atomic agents, the competitive equilibria can be characterized by strengthening the veto power of the grand coalition, formed by all the agents in the economy. The welfare theorems are obtained as easy corollaries of our main result. Furthermore, in the case of finite economies, we show that the characterizations of the Walrasian equilibria based on the veto power of the grand coalition are particular cases of our main theorem. (C) 2007 Elsevier B.V. All rights reserved.