A Strategic Market Game With Secured Lending
We study stationary Markov equilibria for strategic, competitive games, in a market-economy model with one non-durable commodity, fiat money, borrowing/lending through a central bank or a money market, and a continuum of agents. These use fiat money in order to offset random fluctuations in their endowments of the commodity, are not allowed to borrow more than they can pay back (secured lending), and maximize expected discounted utility from consumption of the commodity. Their aggregate optimal actions determine dynamically prices and/or interest rates for borrowing and lending, in each period of play. In equilibrium, random fluctuations in endowment- and wealth-levels offset each other, and prices and interest rates remain constant. As in our related recent work, KSS (1994), we study in detail the individual agents' dynamic optimization problems, and the invariant measures for the associated, optimally controlled Markov chains. By appropriate aggregation, these individual problems lead to the construction of stationary Markov competitive equilibrium for the economy as a whole. Several examples are studied in detail, general existence theorems are established, and open questions are indicated for further research.
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|Date of creation:||Mar 1995|
|Date of revision:|
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Web page: http://www.santafe.edu/sfi/publications/working-papers.html
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- Ioannis Karatzas & Martin Shubik & William D. Sudderth, 1992. "Construction of Stationary Markov Equilibria in a Strategic Market Game," Cowles Foundation Discussion Papers 1033, Cowles Foundation for Research in Economics, Yale University.
- Duffie, Darrell, et al, 1994. "Stationary Markov Equilibria," Econometrica, Econometric Society, vol. 62(4), pages 745-81, July.
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"When are Agents Negligible?,"
1018, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hohn Miller & Martin Shubik, 1994.
"Some dynamics of a strategic market game with a large number of agents,"
Journal of Economics,
Springer, vol. 60(1), pages 1-28, February.
- John H. Miller & Martin Shubik, 1992. "Some Dynamics of a Strategic Market Game with a Large Number of Agents," Cowles Foundation Discussion Papers 1037, Cowles Foundation for Research in Economics, Yale University.
- Dubey, Pradeep, 1982.
"Price-Quantity Strategic Market Games,"
Econometric Society, vol. 50(1), pages 111-26, January.
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- Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
- Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February.
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