Economies with Non-Convex Production and Public Goods : Contract Based Approach

The paper applies and elaborates contractual approach to study economies with a production sector. Economies with convex, non-convex production and with public goods are considered. The notions and terms of barter contractual approach developed in Marakulin (2003a) for exchange economies are now modified and extended to the production economy; there are introduced notions of production contract and adopted known earlier notions, they are: a web of contracts, coalitional domination for webs, a partial breaking of contracts and so on. This way a new notion of marginal contractual allocation is introduced for the model with non-convex production. Then it is applied to describe marginal cost pricing equilibrium, the notion used in theory for nonconvex case instead of Walrasian equilibrium. Also a specific notions of proper contractual and fuzzy contractual allocations for economy with public goods are introduced and their equivalence with Lindahl equilibrium are stated. In general depending on the type of production economy there are three results on equivalence of equilibria and specific (proper, marginal, fuzzy) contractual allocation, implemented via web of contacts stable relative to a partial break. These theorems can be interpreted as a specific form of perfect competition implemented via contractual approach