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Selecting a Unique Competitive Equilibrium with Default Penalties

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Author Info
Cheng-Zhong Qin (Dept. of Economics, UC, Santa Barbara)
Martin Shubik () (Cowles Foundation, Yale University)

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Abstract

The enlargement of the general-equilibrium structure to allow default subject to penalties results in a construction of a simple mechanism for selecting a unique competitive equilibrium. We consider economies for which a common credit money can be applied to uniquely select any competitive equilibrium with suitable default penalties. We identify two classes of such economies. One consists of economies with utility functions being homogeneous of degree 1; the other consists of economies with the number of consumers equal to the number of commodities and traders having quasi-linear utility functions with respect to different commodities.

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File URL: http://cowles.econ.yale.edu/P/cd/d17a/d1712.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1712.

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Length: 20 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:cwl:cwldpp:1712

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Related research
Keywords: Competitive equilibrium; Credit mechanism; Marginal utility of income; Welfare economics;

Find related papers by JEL classification:
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

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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. [Downloadable!] (restricted)
  2. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November. [Downloadable!] (restricted)
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