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 defin ed social choice problem, a condition which is necessary and sufficien t to solve this problem - limited arbitrage - is the same as the condi tion which is necessary and sufficient to establish the existence of a n equilibrium and the core. The connection is strengthened by establis hing that a market allocation, which is in the core, can always be rea lized as a social allocation, i.e. an allocation which is optimal acco rding to an ordering chosen by a social choice rule. Limited arbitrage characterizes those economies without Condorcet triples, and those fo r which Arrow's paradox can be resolved on choices of large utility va lues.