A Credit Mechanism for Selecting a Unique Competitive Equilibrium

16 Pages Posted: 12 Jan 2006

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

Multiple version iconThere are 4 versions of this paper

Date Written: January 2006

Abstract

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. The selection can be utilized to pick a CE that minimizes the need for trust in trade.

Note: A previous version of this abstract can be found at: http://ssrn.com/abstract=840625

Keywords: Competitive equilibrium, credit line, marginal utility of income, IOU, welfare economics

JEL Classification: D5, C72, E4

Suggested Citation

Qin, Cheng-Zhong and Shubik, Martin, A Credit Mechanism for Selecting a Unique Competitive Equilibrium (January 2006). Cowles Foundation Discussion Paper No. 1539R, Available at SSRN: https://ssrn.com/abstract=875632

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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