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On the Equivalence of Walrasian and Non-Walrasian Equilibria in Contract Markets: The Case of Complete Contracts

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  • Peters, Michael

Abstract

This paper explores two models of an economy in which contracts are exchanged. In the first model, contracts are exchanged on a competitive market in which traders' expectations concerning conditions that prevail within specific markets adjust until markets 'clear.' In the second model, contract designers compete directly against one another by offering alternate contracts. It is shown that Walrasian allocations correspond with the equilibrium allocations in the model with direct competition when the number of traders is made large. Furthermore, the expectational assumptions that drive the Walrasian analysis coincide with off the equilibrium path conjectures in the problem with direct competition. Copyright 1997 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 64 (1997)
Issue (Month): 2 (April)
Pages: 241-64

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Handle: RePEc:bla:restud:v:64:y:1997:i:2:p:241-64

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References

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  1. Douglas Gale, 1996. "Equilibria and Pareto optima of markets with adverse selection (*)," Economic Theory, Springer, vol. 7(2), pages 207-235.
  2. Wilson, Robert B, 1989. "Efficient and Competitive Rationing," Econometrica, Econometric Society, vol. 57(1), pages 1-40, January.
  3. Mortensen, Dale T., 1987. "Job search and labor market analysis," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 15, pages 849-919 Elsevier.
  4. James Peck, 1995. "Competition in Transactions Mechanisms: The Emergence of Price Competition," Working Papers 022, Ohio State University, Department of Economics.
  5. Peters, Michael, 1997. "A Competitive Distribution of Auctions," Review of Economic Studies, Wiley Blackwell, vol. 64(1), pages 97-123, January.
  6. Stephen Nickell & D. Nicolitsas, 1994. "Wages," LSE Research Online Documents on Economics 51644, London School of Economics and Political Science, LSE Library.
  7. Gale, Douglas, 1992. "A Walrasian Theory of Markets with Adverse Selection," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 229-55, April.
  8. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  9. Ehud Kalai & Ehud Lehrer, 1993. "Subjective Games and Equilibria: I+," Discussion Papers 1077, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Carlton, Dennis W, 1978. "Market Behavior with Demand Uncertainty and Price Inflexibility," American Economic Review, American Economic Association, vol. 68(4), pages 571-87, September.
  11. Hosios, Arthur J, 1990. "Factor Market Search and the Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 325-55, April.
  12. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December.
  13. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  14. Holzer, Harry J & Katz, Lawrence F & Krueger, Alan B, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 739-68, August.
  15. Hahn, Frank, 1978. "On Non-Walrasian Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 45(1), pages 1-17, February.
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Citations

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Cited by:
  1. Manolis Galenianos & Philipp Kircher, 2007. "Heterogeneous Firms in a Finite Directed Search Economy," PIER Working Paper Archive 07-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Michael Sattinger, 2002. "A Queuing Model of the Market for Access to Trading Partners," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 533-548, May.
  3. Belén Jerez, 2012. "Competitive equilibrium with search frictions : a general equilibrium approach," Economics Working Papers we1235, Universidad Carlos III, Departamento de Economía.
  4. Jacquet, Nicolas L. & Tan, Serene, 2012. "Wage-vacancy contracts and coordination frictions," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1064-1104.
  5. Jan Eeckhout & Philipp Kircher, 2010. "Sorting and decentralized price competition," LSE Research Online Documents on Economics 29705, London School of Economics and Political Science, LSE Library.
  6. Michael Peters, 1998. "Limits of Exact Equilibria for Capacity Constrained Sellers with costlySearch," Working Papers peters-98-01, University of Toronto, Department of Economics.
  7. Jan Eeckhout & Philipp Kircher, 2010. "Sorting versus screening: search frictions and competing mechanisms," LSE Research Online Documents on Economics 29704, London School of Economics and Political Science, LSE Library.
  8. Philipp Kircher, 2008. "Efficiency of Simultaneous Search," PIER Working Paper Archive 08-004, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  9. Moen, Espen R, 2002. "Do Good Workers Hurt Bad Workers - or is it the Other Way Around?," CEPR Discussion Papers 3471, C.E.P.R. Discussion Papers.
  10. Ángel Hernando Veciana, 2001. "Competition Among Auctioneers," Working Papers. Serie AD 2001-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. Michael Peters, 1999. "Common Agency and the Revelation Principle," Working Papers peters-99-01, University of Toronto, Department of Economics.
  12. Manolis Galenianos & Philipp Kircher, 2012. "On the game-theoretic foundations of competitive search equilibrium," LSE Research Online Documents on Economics 29707, London School of Economics and Political Science, LSE Library.
  13. Alos-Ferrer, C., 1998. "Dynamic Systems with a Continuum of Randomly Matched Agents," Papers 9801, Washington St. Louis - School of Business and Political Economy.

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