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A Credit Mechanism for Selecting a Unique Competitive Equilibrium

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  • Qin, Cheng-Zhong
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    Abstract

    This paper considers a credit mechanism for selecting a unique competitive equilibrium (CE). It is shown that in general there exists a “price-normalizing†bundle, with which the enlargement of the general-equilibrium structure to allow for default subject to appropriate penalties results in a construction of a simple credit mechanism for a credit using society to select a unique CE. With some additional conditions, there exists a common price-normalizing bundle with which any CE can be a unique selection for the credit mechanism with appropriate default penalties. The selection can be utilized to select a CE that minimizes the need for money or credit in trade.

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    File URL: http://www.escholarship.org/uc/item/43p4d5wr.pdf;origin=repeccitec
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    Bibliographic Info

    Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt43p4d5wr.

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    Date of creation: 28 Mar 2006
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    Handle: RePEc:cdl:ucsbec:qt43p4d5wr

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    Related research

    Keywords: competitive equilibrium; credit mechanism; marginal utility of income; IOU; default penalty; welfare economics;

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    1. Shapley, Lloyd S & Shubik, Martin, 1977. "An Example of a Trading Economy with Three Competitive Equilibria," Journal of Political Economy, University of Chicago Press, vol. 85(4), pages 873-75, August.
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