A Credit Mechanism for Selecting a Unique Competitive Equilibrium
The enlargement of the general-equilibrium structure to allow default subject to penalties to appririate credit limits and default penalties results in a construction of a simple mechanism for a credit using society. We show that there generically exists a price-normalizing bundle that determines a credit money along with appropriate credit limits and default penalties for a credit mechanism to select a unique competitive equilibrium (CE). With some additional conditions, a common credit money can be applied such that any CE can be a unique selection by the credit mechanism with appropriate credit limits default penalties for the traders. This will include a CE with the minimal cash flow penalty. Such CEs are special for the reason that we minimize the need for a substitute-for-trust (i.e. money) in trade.
|Date of creation:||Oct 2005|
|Date of revision:||Jun 2009|
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- Billera, Louis J., 1974. "On games without side payments arising from a general class of markets," Journal of Mathematical Economics, Elsevier, vol. 1(2), pages 129-139, August.
- Martin Shubik, 2000.
"The Theory of Money,"
00-03-021, Santa Fe Institute.
- 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.
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