Competitive Equilibria in Matching Models with Financial Constraints
GSBE Research Memoranda; No. 007
42 Pages Posted: 17 May 2019
Date Written: March 20, 2019
We consider the one-to-one two-sided matching with contracts model in which buyers face financial constraints. In this model there is a stable outcome, but not necessarily a competitive equilibrium as defined in the standard way. We propose a new equilibrium notion, quantity-constrained competitive equilibrium (QCCE) that allows buyers to form rational expectations on the lack of supply when their financial constraints are binding. We show the existence of QCCEs and establish the equivalence among QCCE outcomes, stable outcomes, and core outcomes. We also analyze the existence of QCCEs with uniform prices, the lattice property of QCCEs, and the rural hospital theorem of QCCEs. We finally examine the relation between models with financial constraints and models with price controls.
Keywords: financial constraints, matching with contracts, stable outcome, quantity-constrained competitive equilibrium, equivalence result, lattice property, core outcome, rural hospital theorem
JEL Classification: C71, C78, D45, D52
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