Market arbitrage, social choice and the core

 This paper establishes a clear connection between equilibrium theory, game theory and social choice theory by showing that, for a well defined social choice problem, a condition which is necessary and sufficient to solve this problem – limited arbitrage – is the same as the condition which is necessary and sufficient to establish the existence of an equilibrium and the core. The connection is strengthened by establishing that a market allocation, which is in the core, can always be realized as a social allocation, i.e. an allocation which is optimal according to an ordering chosen by a social choice rule. Limited arbitrage characterizes those economies without Condorcet triples, and those for which Arrow’s paradox can be resolved on choices of large utility values. Received: 30 December 1994/Accepted: 12 August 1996