Repeated Trade and the Velocity of Money
AbstractThere are two sources of inefficiency of strategic equilibria (SE) in market mechanisms. The first is the oligopolistic effect, which occurs when an agent can single-handedly influence prices. With a continuum of agents we get "perfect competition" and this effect is, of course, wiped out. But the inefficiency of SE's may nevertheless persist because agents are not "perfectly liquid," i.e., the constraints of the mechanism are such that they cannot carry out arbitrary trades at the market prices. Our main result is that, if enough repeated rounds of trade are permitted within a single utility period, then the liquidity problem is overcome: SE outcomes turn out to be not only efficient but, in fact, Walrasian.
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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 895.
Length: 16 pages
Date of creation: Jan 1989
Date of revision:
Publication status: Published in Journal of Mathematical Economics (1993), 22: 125-137
Note: CFP 842.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
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