A Credit Mechanism for Selecting a Unique Competitive Equilibrium

20 Pages Posted: 13 Mar 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: March 2006

Abstract

This paper considers a credit mechanism for selecting a unique competitive equilibrium (CE). It is shown that in general there exists a "price-normalizing" bundle, with which the enlargement of the general-equilibrium structure to allow for default subject to appropriate penalties results in a construction of a simple credit mechanism for a credit using society to select a unique CE. With some additional conditions, there exists a common price-normalizing bundle with which any CE can be a unique selection for the credit mechanism with appropriate default penalties. The selection can be utilized to select a CE that minimizes the need for money or credit in trade.

Note: Previous versions of this paper can be found at: http://ssrn.com/abstract=840625 and http://ssrn.com/abstract=875632

Keywords: Competitive equilibrium, Credit mechanism, Marginal utility of income, IOU, Default penalty, Welfare economics

JEL Classification: D5, C72, E4

Suggested Citation

Qin, Cheng-Zhong and Shubik, Martin, A Credit Mechanism for Selecting a Unique Competitive Equilibrium (March 2006). Cowles Foundation Discussion Paper No. 1539RR, Available at SSRN: https://ssrn.com/abstract=890328

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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