``Further Remarks on Walras' Law and Nonoptimal Equilibria''

Mark Pingle () and Leigh Tesfatsion ()

GE, Growth, Math methods from EconWPA

Abstract: The objective of this note is to show that the positively valued excess supplies which Aiyagari (JME, 1992) connects with Pareto inefficiency for overlapping generations economies represent an economic opportunity that can potentially be exploited by government or by a private financial intermediary through the issuance of unsecured debt. We demonstrate that, when unsecured debt is issued, Walras' Law does not fail in the sense described by Aiyagari. However, the mere issuance of unsecured debt does not ensure Pareto efficiency. We show that Pareto efficiency is achieved if and only if the opportunity to issue unsecured debt is optimally exploited, for example, by an earnings-driven private financial intermediary.

JEL-codes: C6 D5 D9 (search for similar items in EconPapers)
Date: 1993-12-04
Note: 10 pages, includes 1 figure, all in LaTeX
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpge:9312001

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