A Credit Mechanism for Selecting a Unique Competitive Equilibrium
13 Pages Posted: 4 Nov 2005
Date Written: November 2005
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
Keywords: Banknotes, competitive equilibrium, credit line, Lagrangian multiplier, IOU, welfare economics
JEL Classification: D5, C72, E4
Suggested Citation: Suggested Citation