A Credit Mechanism for Selecting a Unique Competitive Equilibrium

Cheng-Zhong Qin and Martin Shubik
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Cheng-Zhong Qin: Dept. of Economics, UC Santa Barbara

No 1539R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: The enlargement of the general-equilibrium structure to allow default subject to penalties to appririate credit limits and default penalties results in a construction of a simple mechanism for a credit using society. We show that there generically exists a price-normalizing bundle that determines a credit money along with appropriate credit limits and default penalties for a credit mechanism to select a unique competitive equilibrium (CE). With some additional conditions, a common credit money can be applied such that any CE can be a unique selection by the credit mechanism with appropriate credit limits default penalties for the traders. This will include a CE with the minimal cash flow penalty. Such CEs are special for the reason that we minimize the need for a substitute-for-trust (i.e. money) in trade.

Keywords: Competitive equilibrium; Credit mechanism; Marginal utility of income; Welfare economics (search for similar items in EconPapers)
JEL-codes: C72 D5 E4 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2005-10, Revised 2009-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: A Credit Mechanism for Selecting a Unique Competitive Equilibrium (2006)
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