Manipulation games in economies with indivisible goods

In this paper we study the strategic aspects of the No-Envy solution for the problem of allocating a …nite set of indivisible goods among a group of agents when monetary compensations are possible. In the …rst part of the paper we consider the case where each agent receives, at most, one indivisible good. We prove that the set of equilibrium allocations of any direct revelation game associated with a subsolution of the No-Envy solution coincides with the set of envy-free allocations for the true preferences. Under manipulation all the subsolutions of the No-Envy solution are equivalent. In the second part of the paper, we allow each agent to receive more than one indivisible good. In this situation the above characterization does not hold any more. We prove that any Equal Income Walrasian allocation for the true preferences can be supported as an equilibrium allocation of any direct revelation game associated with subsolutions of the No-Envy solution, but also non-e¢ cient allocations can be supported. I thank Luis Corchón, Bernardo Moreno and the two anonymous referees for their very helpful comments. This research has been supported by the Barcelona GSE research network and the Generalitat of Catalunya. I also acknowledge …nancial support from grants "Acciones Complementarias" SEJ2006-27589-E and FEDER, "Consolidated Group-C" ECO2008-04756, and 2005SGR-00454.