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Selecting a unique competitive equilibrium with default penalties

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  • Cheng-Zhong Qin
  • Martin Shubik

Abstract

The enlargement of the general-equilibrium structure to allow default subject to penalties results in a construction of a simple mechanism for selecting a unique competitive equilibrium. We consider economies for which a common credit money can be applied to uniquely select any competitive equilibrium with suitable default penalties. We identify two classes of such economies. One consists of economies with utility functions being homogeneous of degree 1; the other consists of economies with the number of consumers equal to the number of commodities and traders having quasi-linear utility functions with respect to different commodities.
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  • Cheng-Zhong Qin & Martin Shubik, 2012. "Selecting a unique competitive equilibrium with default penalties," Journal of Economics, Springer, vol. 106(2), pages 119-132, June.
    • Handle: RePEc:kap:jeczfn:v:106:y:2012:i:2:p:119-132
    DOI: 10.1007/s00712-011-0234-8
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    References listed on IDEAS

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    1. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
    2. Martin Shubik, 2000. "The Theory of Money," Working Papers 00-03-021, Santa Fe Institute.
    3. 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 873-875, August.
    4. Takayama,Akira, 1985. "Mathematical Economics," Cambridge Books, Cambridge University Press, number 9780521314985, November.
    5. Qin, Cheng-Zhong, 1993. "A Conjecture of Shapley and Shubik on Competitive Outcomes in the Cores of NTU Market Games," International Journal of Game Theory, Springer;Game Theory Society, vol. 22(4), pages 335-344.
    6. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    7. 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.
    8. 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.
    9. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    10. Martin Shubik & Ward Whitt, 1973. "Fiat Money in an Economy with One Nondurable Good and No Credit (A Noncooperative Sequential Game)," Cowles Foundation Discussion Papers 355, Cowles Foundation for Research in Economics, Yale University.
    11. Ioannis Karatzas & Martin Shubik & William D. Sudderth, 1994. "Construction of Stationary Markov Equilibria in a Strategic Market Game," Mathematics of Operations Research, INFORMS, vol. 19(4), pages 975-1006, November.
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    Cited by:

    1. Brangewitz, Sonja & Gamp, Jan-Philip, 2013. "Asymmetric Nash bargaining solutions and competitive payoffs," Economics Letters, Elsevier, vol. 121(2), pages 224-227.
    2. Giménez, Eduardo L., 2022. "Offer curves and uniqueness of competitive equilibrium," Journal of Mathematical Economics, Elsevier, vol. 98(C).

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    More about this item

    Keywords

    Competitive equilibrium; Credit mechanism; Marginal utility of income; Saddle-point characterization; Welfare economics; D5; C72; E4;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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