Rental harmony with roommates

Abstract: We prove existence of envy-free allocations in markets with heterogenous indivisible goods and money, when a given quantity is supplied from each of the goods and agents have unit demands. We depart from most of the previous literature by allowing agents' preferences over the goods to depend on the entire vector of prices. Our proof uses Shapley's K-K-M-S theorem and Hall's marriage lemma. We then show how our theorem may be applied in two related problems: Existence of envy-free allocations in a version of the cake-cutting problem, and existence of equilibrium in an exchange economy with indivisible goods and money.