General equilibrium for economies with harmful overconsumption

Abstract

This paper studies general equilibrium models for economies with overconsumption goods. We consider two kinds of good: usual commodity (for usual consumption) and harmful overconsumption commodity. The consumption of the usual commodity always increases an agent's utility. But for the harmful overconsumption commodity, once the consumption reaches a critical point, there is disutility of consuming more. Overconsumption of this commodity is harmful. The utility function is no longer monotonically increasing when overconsumption happens. The existence of general equilibrium is solved from truncated economies and Arrow-Debreu economies with usual utility function. We provide a few examples to show general equilibria for various cases. © Springer-Verlag Berlin Heidelberg 2005.