COMPETITIVE EQUILIBRIA IN MATCHING MODELS WITH FINANCIAL CONSTRAINTS

P. Jean-Jacques Herings and Yu Zhou

International Economic Review, 2022, vol. 63, issue 2, 777-802

Abstract: We consider a matching with contracts model in which buyers face financial constraints. In this model, a competitive equilibrium may fail to exist. We therefore propose the new notion of quantity‐constrained competitive equilibrium (QCCE). At a QCCE, buyers form expectations about the expected supply of trades. A buyer may expect that a trade is not to be supplied if the corresponding financial constraint is binding. We show the existence of QCCEs via a dynamic process that updates prices and quantity constraints, the equivalence between QCCE outcomes and stable outcomes, and some other properties of QCCEs like the lattice property.

Date: 2022
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https://doi.org/10.1111/iere.12550

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Working Paper: Competitive Equilibria in Matching Models with Financial Constraints (2019)
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