Selecting a Unique Competitive Equilibrium with Default Penalties

21 Pages Posted: 17 Jul 2009

See all articles by Cheng-Zhong Qin

Cheng-Zhong Qin

University of California, Santa Barbara (UCSB) - Department of Economics

Martin Shubik

Yale University - School of Management; Yale University - Cowles Foundation

Date Written: July 14, 2009

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.

Keywords: competitive equilibrium, credit mechanism, marginal utility of income, welfare economics

JEL Classification: D5, C72, E4

Suggested Citation

Qin, Cheng-Zhong and Shubik, Martin, Selecting a Unique Competitive Equilibrium with Default Penalties (July 14, 2009). Cowles Foundation Discussion Paper No. 1712, Available at SSRN: https://ssrn.com/abstract=1433774

Cheng-Zhong Qin

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States

Martin Shubik (Contact Author)

Yale University - School of Management ( email )

Box 208200
New Haven, CT 06520-8200
United States

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3694 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://cowles.econ.yale.edu/P/au/d_shubik.htm

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