Absence of Envy among “Neighbors” Can Be Enough

Abstract

AbstractWe assume that the set of agents is decomposed into several classes containing individuals related each other in some way, for example groups of neighbors. We propose a new definition of fairness by requiring efficiency and envy-freeness only within each group. We identify conditions under which absence of envy among “neighbors” is enough to ensure fairness in the entire society. We also show that equal-income Walrasian equilibria are the only fair allocations according to our notion, deriving as corollaries the equivalence theorems of Zhou (1992) and Cato (2010). The analysis is conducted in atomless economies as well as in mixed markets.