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A Strategic Market Game with Secured Lending

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Author Info
Ioannis Karatzas (Columbia University)
Martin Shubik () (Cowles Foundation, Yale University)
William D. Sudderth (University of Minnesota)

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Abstract

We study stationary Markov equilibria for strategic, competitive games, in a market-economy model with one non-durable commodity, fiat money, borrowing/lending through a central bank or a money market, and a continuum of agents. These use fiat money in order to offset random fluctuations in their endowments of the commodity, are not allowed to borrow more than they can pay back (secured lending), and maximize expected discounted utility from consumption of the commodity. Their aggregate optimal actions determine dynamically prices and/or interest rates for borrowing and lending, in each period of play. In equilibrium, random fluctuations in endowment- and wealth-levels offset each other, and prices and interest rates remain constant. As in our related recent work, KSS (1994), we study in detail the individual agents' dynamic optimization problems, and the invariance measures for the associated, optimally controlled Markov chains. By appropriate aggregation, these individual problems lead to the construction of stationary Markov competitive equilibrium for the economy as a whole. Several examples are studied in detail, fairly general existence theorems are established, and open questions are indicated for further research.

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Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1099.

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Length: 45 pages
Date of creation: May 1995
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Handle: RePEc:cwl:cwldpp:1099

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February. [Downloadable!] (restricted)
  2. Dubey, Pradeep, 1982. "Price-Quantity Strategic Market Games," Econometrica, Econometric Society, vol. 50(1), pages 111-26, January. [Downloadable!] (restricted)
  3. Ioannis Karatzas & Martin Shubik & William D. Sudderth, 1992. "Construction of Stationary Markov Equilibria in a Strategic Market Game," Cowles Foundation Discussion Papers 1033, Cowles Foundation, Yale University. [Downloadable!]
  4. Dubey, Pradeep & Shapley, Lloyd S., 1994. "Noncooperative general exchange with a continuum of traders: Two models," Journal of Mathematical Economics, Elsevier, vol. 23(3), pages 253-293, May. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ioannis Karatzas & Martin Shubik & William D. Sudderth, 1997. "A Stochastic Infinite-Horizon Economy with Secured Lending, or Unsecured Lending and Bankruptcy," Cowles Foundation Discussion Papers 1156, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  2. Martin Shubik & Nicolaas J. Vriend, 1999. "A Behavioral Approach to a Strategic Market Game," Research in Economics 99-01-003e, Santa Fe Institute. [Downloadable!]
  3. I. Karatzas & M. Shubik & W. Sudderth, 2000. "A Stochastic Overlapping Generations Economy with Inheritance," Working Papers 00-04-023, Santa Fe Institute.
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  4. Ioannis Karatzas & Martin Shubik & William D. Sudderth, 2000. "Information and the Existence of Stationary Markovian Equilibrium," Cowles Foundation Discussion Papers 1261, Cowles Foundation, Yale University. [Downloadable!]
  5. AMIR, Rabah, 2001. "Stochastic games in economics and related fields: an overview," CORE Discussion Papers 2001060, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  6. John Geanakoplos & Ioannis Karatzas & Martin Shubik & William D. Sudderth, 2009. "Inflationary Equilibrium in a Stochastic Economy with Independent Agents," Cowles Foundation Discussion Papers 1708, Cowles Foundation, Yale University. [Downloadable!]
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