``Further Remarks on Walras' Law and Nonoptimal Equilibria''

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``Further Remarks on Walras' Law and Nonoptimal Equilibria''

Author Info

Mark Pingle (Department of Economics, U of Nevada, Reno, Nevada, Reno, NV 89557)
Leigh Tesfatsion (Dept. of Economics, Iowa State U, Ames, Iowa 50011-1070)

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Abstract

The objective of this note is to show that the positively valued excess supplies which Aiyagari (JME, 1992) connects with Pareto inefficiency for overlapping generations economies represent an economic opportunity that can potentially be exploited by government or by a private financial intermediary through the issuance of unsecured debt. We demonstrate that, when unsecured debt is issued, Walras' Law does not fail in the sense described by Aiyagari. However, the mere issuance of unsecured debt does not ensure Pareto efficiency. We show that Pareto efficiency is achieved if and only if the opportunity to issue unsecured debt is optimally exploited, for example, by an earnings-driven private financial intermediary.

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Paper provided by EconWPA in its series GE, Growth, Math methods with number 9312001.

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Length: 10 pages
Date of creation: 04 Dec 1993
Date of revision:
Handle: RePEc:wpa:wuwpge:9312001

Note: 10 pages, includes 1 figure, all in LaTeX
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Find related papers by JEL classification:
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
D5 - Microeconomics - - General Equilibrium and Disequilibrium
D9 - Microeconomics - - Intertemporal Choice and Growth

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.:

Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February. [Downloadable!] (restricted)
Rao Aiyagari, S., 1992. "Walras' Law and nonoptimal equilibria in overlapping generations models," Journal of Mathematical Economics, Elsevier, vol. 21(4), pages 343-361. [Downloadable!] (restricted)
Other versions:
- S. Rao Aiyagari, 1991. "Walras' Law and nonoptimal equilibria in overlapping generations models," Working Papers 393, Federal Reserve Bank of Minneapolis. [Downloadable!]
Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December. [Downloadable!] (restricted)

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