A Credit Mechanism for Selecting a Unique Competitive Equilibrium
AbstractWe show by an iterated process of price normalization that there generically exists a price-normalizing bundle that determines a credit money, such that the enlargement of the general-equilibrium structure to allow for default subject to an appropriate credit limit and default penalty for each trader results in a construction of a simple mechanism for a credit using society to select a unique competitive equilibrium (CE). With some additional conditions, a common credit money can be applied such that any CE can be a unique selection by the credit mechanism with the appropriate credit limit and default penalties for the traders. This will include a CE with the "minimal cash flow" property. Such CEs are special for the reason that they minimize the need for a "substitute-for-trust" (i.e., money) in trade.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1539.
Length: 21 pages
Date of creation: Oct 2005
Date of revision: Nov 2006
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Other versions of this item:
- Cheng-Zhong Qin & Martin Shubik, 2005. "A Credit Mechanism for Selecting a Unique Competitive Equilibrium," Cowles Foundation Discussion Papers 1539R, Cowles Foundation for Research in Economics, Yale University, revised Jun 2009.
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-01 (All new papers)
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.:
- Billera, Louis J., 1974. "On games without side payments arising from a general class of markets," Journal of Mathematical Economics, Elsevier, vol. 1(2), pages 129-139, August.
- Martin Shubik, 2000.
"The Theory of Money,"
Cowles Foundation Discussion Papers
1253, Cowles Foundation for Research in Economics, Yale University.
- 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.
- Chen-Zhong Qin & Lloyd S. Shapley & Martin Shubik, 2009. "Marshallian Money, Welfare, and Side-Payments," Cowles Foundation Discussion Papers 1729, Cowles Foundation for Research in Economics, Yale University.
- Juergen Huber & Martin Shubik & Shyam Sunder, 2009. "Default Penalty as a Disciplinary and Selection Mechanism in Presence of Multiple Equilibria," Cowles Foundation Discussion Papers 1730, Cowles Foundation for Research in Economics, Yale University.
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