Strategic Freedom, Constraint, and Symmetry in One-period Markets with Cash and Credit Payment

Martin Shubik and Eric Smith
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Eric Smith: Santa Fe Institute

No 1420, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: In order to explain in a systematic way why certain combinations of market, financial, and legal structures may be intrinsic to certain capabilities to exchange real goods, we introduce criteria for abstracting the qualitative functions of markets. The criteria involve the number of strategic freedoms the combined institutions, considered as formalized strategic games, present to traders, the constraints they impose, and the symmetry with which those constraints are applied to the traders. We pay particular attention to what is required to make these "strategic market games" well-defined, and to make various solutions computable by the agents within the bounds on information and control they are assumed to have. As an application of these criteria, we present a complete taxonomy of the minimal one-period exchange economies with symmetric information and inside money. A natural hierarchy of market forms is observed to emerge, in which institutionally simpler markets are often found to be more suitable to fewer and less-diversified traders, while the institutionally richer markets only become functional as the size and diversity of their users gets large.

Keywords: Strategic market games; Clearinghouses; Credit evaluation; Default (search for similar items in EconPapers)
JEL-codes: C7 D40 D50 G10 G20 L10 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2003-05
New Economics Papers: this item is included in nep-cfn and nep-fin
References: Add references at CitEc
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Published in Economic Theory (2005), 25: 513-551

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Related works:
Journal Article: Strategic freedom, constraint, and symmetry in one-period markets with cash and credit payment (2005)
Working Paper: Strategic Freedom, Constraint, and Symmetry in One-period Markets with Cash and Credit Payment (2004)
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