A Strategic Market Game of a Finite Economy with a Mutual Bank

Martin Shubik and Jingang Zhao

No 961, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We introduce a strategic market game for an exchange economy not having enough commodity money. We show the existence of a non-cooperative equilibrium for any finite replication economy with a mutual bank, we then show that efficient trade can be achieved in the limiting economy by expanding the money supply through the use of fractional reserves, where the commodity money is demonetized and used for reserves. The means of exchange becomes bank credit backed in part, by "gold." However, efficiency cannot be achieved in general as a non-cooperative equilibrium of a finite player game or a finite exchange economy.

Pages: 22 pages
Date: 1990-11
Note: CFP 807.
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Citations: View citations in EconPapers (29)

Published in Mathematical Social Sciences (1991), 22: 257-274

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