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On the Equivalence of Walrasian and Non-Walrasian Equilibria in Contract Markets: The case of Complete Contracts

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  • Michael Peters

Abstract

This paper explores two models of an economy in which contracts are exchanged. In the first version contracts are exchanged on a competitive market in which traders expectations concerning conditions that prevail within specific markets adjust until markets `clear'. In the second model contract designers compete directly against one another by offering alternate contracts. It is shown that Walrasian allocations correspond with the equilibrium allocations in the model with direct competition when the number of traders is made large. Furthermore, the expectational assumptions that drive the Walrasian analysis coincide with off the equilibrium path conjectures in the problem with direct competition.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number peters-95-01.

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Length: 45 pages
Date of creation: 11 Jul 1995
Date of revision:
Handle: RePEc:tor:tecipa:peters-95-01

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References

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  1. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  2. Stephen Nickell & D Nicolitsas, 1994. "Wages," CEP Discussion Papers dp0219, Centre for Economic Performance, LSE.
  3. D. W. Carlton, 1976. "Market Behavior With Demand Uncertainty and Price Inflexibility," Working papers 179, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Dale Mortensen, 1984. "Job Search and Labor Market Analysis," Discussion Papers 594, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Gale, Douglas, 1992. "A Walrasian Theory of Markets with Adverse Selection," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 229-55, April.
  6. Hosios, Arthur J, 1990. "Factor Market Search and the Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 325-55, April.
  7. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  8. Hahn, Frank, 1978. "On Non-Walrasian Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 45(1), pages 1-17, February.
  9. Peters Michael, 1994. "Equilibrium Mechanisms in a Decentralized Market," Journal of Economic Theory, Elsevier, vol. 64(2), pages 390-423, December.
  10. James Peck, 1995. "Competition in Transactions Mechanisms: The Emergence of Price Competition," Working Papers 022, Ohio State University, Department of Economics.
  11. Wilson, Robert B, 1989. "Efficient and Competitive Rationing," Econometrica, Econometric Society, vol. 57(1), pages 1-40, January.
  12. Michael Peters, 1995. "A Competitive Distribution of Auctions," Working Papers peters-95-03, University of Toronto, Department of Economics.
  13. Douglas Gale, 1994. "Equilibria and Pareto Optima of Markets with Adverse Selection," Papers 0046, Boston University - Industry Studies Programme.
  14. Ehud Kalai & Ehud Lehrer, 1993. "Subjective Games and Equilibria: I+," Discussion Papers 1077, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Holzer, Harry J & Katz, Lawrence F & Krueger, Alan B, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 739-68, August.
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Citations

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Cited by:
  1. Jan Eeckhout & Philipp Kircher, 2010. "Sorting and Decentralized Price Competition," Econometrica, Econometric Society, vol. 78(2), pages 539-574, 03.
  2. Michael Peters, 1999. "Common Agency and the Revelation Principle," Working Papers peters-99-01, University of Toronto, Department of Economics.
  3. Peters, Michael, 2000. "Limits of Exact Equilibria for Capacity Constrained Sellers with Costly Search," Journal of Economic Theory, Elsevier, vol. 95(2), pages 139-168, December.
  4. Carlos Alós-Ferrer, 1998. "- Dynamical Systems With A Continuum Of Randomly Matched Agents," Working Papers. Serie AD 1998-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Philipp Kircher, 2008. "Efficiency of Simultaneous Search," PIER Working Paper Archive 08-004, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  6. Eeckhout, Jan & Kircher, Philipp, 2010. "Sorting versus screening: Search frictions and competing mechanisms," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1354-1385, July.
  7. Ángel Hernando Veciana, 2001. "Competition Among Auctioneers," Working Papers. Serie AD 2001-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  8. Belén Jerez, 2012. "Competitive equilibrium with search frictions : a general equilibrium approach," Economics Working Papers we1235, Universidad Carlos III, Departamento de Economía.
  9. Manolis Galenianos & Philipp Kircher, 2007. "Heterogeneous Firms in a Finite Directed Search Economy," PIER Working Paper Archive 07-003, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  10. Moen, Espen R, 2002. "Do Good Workers Hurt Bad Workers - or is it the Other Way Around?," CEPR Discussion Papers 3471, C.E.P.R. Discussion Papers.
  11. Manolis Galenianos & Philipp Kircher, 2012. "On the game-theoretic foundations of competitive search equilibrium," LSE Research Online Documents on Economics 29707, London School of Economics and Political Science, LSE Library.
  12. Jacquet, Nicolas L. & Tan, Serene, 2012. "Wage-vacancy contracts and coordination frictions," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1064-1104.
  13. Michael Sattinger, 2002. "A Queuing Model of the Market for Access to Trading Partners," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 533-548, May.

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