A Credit Mechanism for Selecting a Unique Competitive Equilibrium
16 Pages Posted: 12 Jan 2006
Date Written: January 2006
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: Suggested Citation