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Strategic freedom, constraint, and symmetry in one-period markets with cash and credit payment


  • Eric Smith


  • Martin Shubik


In order to explain in a systematic way why certain combinations of market, financial, and legal structures may be intrinsic to certain capabilities to exchange real goods, we introduce criteria for abstracting the qualitative functions of markets. The criteria involve the number of strategic freedoms the combined institutions, considered as formalized strategic games, present to traders, the constraints they impose, and the symmetry with which those constraints are applied to the traders. We pay particular attention to what is required to make these “strategic market games” well-defined, and to make various solutions computable by the agents within the bounds on information and control they are assumed to have. As an application of these criteria, we present a complete taxonomy of the minimal one-period exchange economies with symmetric information and inside money. A natural hierarchy of market forms is observed to emerge, in which institutionally simpler markets are often found to be more suitable to fewer and less-diversified traders, while the institutionally richer markets only become functional as the size and diversity of their users gets large. Copyright Springer-Verlag Berlin/Heidelberg 2005

Suggested Citation

  • Eric Smith & Martin Shubik, 2005. "Strategic freedom, constraint, and symmetry in one-period markets with cash and credit payment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(3), pages 513-551, April.
  • Handle: RePEc:spr:joecth:v:25:y:2005:i:3:p:513-551 DOI: 10.1007/s00199-003-0453-5

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    References listed on IDEAS

    1. Andreu Mas-Colell & Xavier Vives, 1993. "Implementation in Economies with a Continuum of Agents," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 613-629.
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    Cited by:

    1. 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.
    2. Juergen Huber & Martin Shubik & Shyam Sunder, 2009. "Default Penalty as a Selection Mechanism among Multiple Equilibria," Cowles Foundation Discussion Papers 1730R2, Cowles Foundation for Research in Economics, Yale University, revised Oct 2014.
    3. Martin Shubik & Eric Smith, 2005. "Fiat Money and the Natural Scale of Government," Cowles Foundation Discussion Papers 1509, Cowles Foundation for Research in Economics, Yale University.
    4. Thomas Quint & Martin Shubik, 2004. "A Consumable Money. An Elementary Discussion of Commodity Money, Fiat Money and Credit: Part I," Cowles Foundation Discussion Papers 1455, Cowles Foundation for Research in Economics, Yale University.
    5. Eric Smith & Martin Shubik, 2005. "Commodity Money and the Valuation of Trade," Cowles Foundation Discussion Papers 1510, Cowles Foundation for Research in Economics, Yale University.

    More about this item


    Strategic market games; Clearinghouses; Credit evaluation; Default.;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory


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