Walrasian allocations without price-taking behavior

Consider an exchange economy where agents are arbitragers, in that they try to upset allocations imagining plausible beneficial trades. With an intros pective algorithm, each agent constructs an interactive choice set (ICS), i .e., a set of bundles that he considers achievable through a sequence of pl ausible trades with other agents. We show that Walrasian allocations can he characterized as those where each agent chooses optimally from his ICS, wh ich is always contained in a budget set (with differentiability, both sets coincide). Our analysis provides a different behavioral assumption underlyi ng Walrasian allocations, offers an explanation for the sourer of competiti ve prices, and connects with the core convergence theorem. Journal of Econo mic Literature Classification Numbers: D00, D51. (C) 2000 Academic Press.