A Credit Mechanism for Selecting a Unique Competitive Equilibrium
University of California, Santa Barbara - Department of Economics
Yale University - School of Management; Yale University - Cowles Foundation
Cowles Foundation Discussion Paper No. 1539
A credit mechanism is considered that selects a unique competitive equilibrium (CE) of an exchange economy. It is shown that a price normalization calling for a fixed monetary value for the total wealth in the economy and the addition of appropriate default penalties together result in a construction of a simple credit mechanism that selects a unique CE.
Note: An updated version of this abstract can be found at: http://ssrn.com/abstract=875632
Number of Pages in PDF File: 13
Keywords: Banknotes, competitive equilibrium, credit line, Lagrangian multiplier, IOU, welfare economics
JEL Classification: D5, C72, E4working papers series
Date posted: November 4, 2005
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