Competitive Equilibria in Matching Models with Financial Constraints

GSBE Research Memoranda; No. 007

42 Pages Posted: 17 May 2019

See all articles by P. Jean-Jacques Herings

P. Jean-Jacques Herings

Maastricht University

Yu Zhou

affiliation not provided to SSRN; Graduate School of Economics, Kyoto University

Date Written: March 20, 2019

Abstract

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

Suggested Citation

Herings, P. Jean-Jacques and Zhou, Yu and Zhou, Yu, Competitive Equilibria in Matching Models with Financial Constraints (March 20, 2019). GSBE Research Memoranda; No. 007, Available at SSRN: https://ssrn.com/abstract=3373744 or http://dx.doi.org/10.2139/ssrn.3373744

P. Jean-Jacques Herings (Contact Author)

Maastricht University ( email )

Department of Economics
P.O. Box 616
6200 MD Maastricht
Netherlands
+31 43 3883636 (Phone)
+31 43 3884878 (Fax)

HOME PAGE: http://www.personeel.unimaas.nl/p.herings/herings.htm

Yu Zhou

affiliation not provided to SSRN

Graduate School of Economics, Kyoto University ( email )

Yoshida-Honmachi, Sakyo-ku, Kyoto
Kyoto, 606-8501
Japan

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