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Quality of local equilibria in discrete exchange economies

This paper defines the notion of a local equilibrium of quality $(r , s)$, $0 \leq r , s$, in a discrete exchange economy: a partial allocation and item prices that guarantee certain stability properties parametrized by the numbers $r$ and $s$. The quality $( r , s )$ measures the fit between the allocation and the prices: the larger $r$ and $s$ the closer the fit. For $r , s \leq 1$ this notion provides a graceful degradation for the conditional equilibria of [10] which are exactly the local equilibria of quality $( 1 , 1 )$. For $1 < r , s $ the local equilibria of quality $( r , s )$ are {\em more stable} than conditional equilibria. Any local equilibrium of quality $( r , s )$ provides, without any assumption on the type of the agents' valuations, an allocation whose value is at least $\frac{r s} { 1 + r s }$ the optimal fractional allocation. In any economy in which all agents' valuations are $a$-submodular, i.e., exhibit complementarity bounded by $a \: \geq \: 1$, there is a local equilibrium of quality $( \frac{1} {a} , \frac{1}{a} )$. In such an economy any greedy allocation provides a local equilibrium of quality $( 1 , \frac{1}{a} ) $. Walrasian equilibria are not amenable to such graceful degradation.