The enlargement of the general-equilibrium structure to allow default subject to penalties results in a construction of a simple mechanism for selecting a unique competitive equilibrium. We consider economies for which a common credit money can be applied to uniquely select any competitive...

We argue that even when macroeconomic variables are constant, underlying microeconomic uncertainty and borrowing constraints generate inflation.We study stochastic economies with fiat money, a central bank, one nondurable commodity, countably many time periods, and a continuum of agents. The...

The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this is so, extolling the virtues of equilibrium theory; then...

We show by an iterated process of price normalization that there generically exists a price-normalizing bundle that determines a credit money, such that the enlargement of the general-equilibrium structure to allow for default subject to an appropriate credit limit and default penalty for each...

This paper considers a credit mechanism for selecting a unique competitive equilibrium (CE). It is shown that in general there exists a quot;price-normalizingquot; bundle, with which the enlargement of the general-equilibrium structure to allow for default subject to appropriate penalties...

A credit mechanism is considered that selects a unique competitive equilibrium (CE) of an exchange economy. It is shown that a price normalization calling for a fixed monetary value for the total wealth in the economy and the addition of appropriate default penalties together result in a...

We prove that in competitive market economies with no insurance for idiosyncratic risks, agents will always overinvest in illiquid long term assets and underinvest in short term liquid assets. We take as our setting the seminal model of Diamond and Dybvig (1983), who first posed the question in...

Carbon budgets are a useful way to frame the climate mitigation challenge and much easier to agree upon than the allocation of emissions. We propose a mechanism with countries agreeing on the global carbon budget, while the decision to emit is decentralized at the country level. The revenue is...

The OLG model of Allais and Samuelson retains the methodological assumptions of agent optimization and market clearing from the Arrow-Debreu model, yet its equilibrium set has different properties: Pareto inefficiency, indeterminacy, positive valuation of money, and a golden rule equilibrium in...

We study markets in which agents first make investments and are then matched into potentially productive partnerships. Equilibrium investments and the equilibrium matching will be efficient if agents can simultaneously negotiate investments and matches, but we focus on markets in which agents...