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Perfectly competitive bilateral exchange without discounting
In a random-matching economy of traders who maximize cumulative consumption (overtaking criterion), the stationary, Markov, Bayesian-perfect equilibrium is studied. At such equilibrium, two results hold: (1) perfect substitutability between current and future consumption implies a no-surplus conditi...
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Published in: | Journal of monetary economics 2010-03, Vol.57 (2), p.121-131 |
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Main Authors: | , |
Format: | Article |
Language: | English |
Subjects: | |
Citations: | Items that this one cites Items that cite this one |
Online Access: | Get full text |
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Summary: | In a random-matching economy of traders who maximize cumulative consumption (overtaking criterion), the stationary, Markov, Bayesian-perfect equilibrium is studied. At such equilibrium, two results hold: (1) perfect substitutability between current and future consumption implies a no-surplus condition; and (2) by the no-surplus condition, there is a nominal price at which all trades must occur. These results strengthen the seminal results of
Ostroy (1973) regarding monetary bilateral exchange in two ways: the incentive compatibility of the equilibrium trading pattern is established and a less roundabout trading pattern enhances welfare by enabling consumption to occur more frequently. |
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ISSN: | 0304-3932 1873-1295 |
DOI: | 10.1016/j.jmoneco.2010.01.001 |