Lottery Equilibrium

Absent convex preferences or in the presence of indivisibilities, many classical results in general equilibrium fail. We provide a simple solution in a continuum economy: allow traders to engage in simple lotteries between two wealth levels. Such lottery equilibria approximately clear finite economies, with the approximation improving as the economy grows large. Our results generalize those in macroeconomics while suggesting more efficient designs for assignment without transfers and auction markets with budget constraints and may have implications for social policy and the theory of fair allocations.