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The purpose of this paper is to prove the existence of a marginal pricing economic equilibrium in presence of increasing returns and externalities in a commodity space general enough as to encompass the vast majority of economic situations. This extends the existing literature on competitive equilibria in vector lattices by incorporating market failures, and it also generalises several non-competitive existence results to a larger class of commodity spaces. The key features are a suitable definition for the marginal pricing rule and an adaptation of the properness condition. [ABSTRACT FROM AUTHOR]

Summary. This paper discusses the existence of an optimal income tax and distinguishes itself from the previous articles in two respects. In previous papers, the self selection condition was not necessarily consistent with the individual budget constraint. Furthermore, implementability in previous papers was implicit in individual ability, rather than individual income, as the basis of the tax function. We offer a different concept of the self selection conditions: Anti Normal Envy that is consistent with the individual budget constraint and that we show to be equivalent to the competitive equilibrium under a tax function based on income. We then establish the existence of an implementable optimal income tax. [ABSTRACT FROM AUTHOR]

I investigate the incentives to release information in markets in which auctioneers running second-price auctions compete for buyers by releasing information about their products before buyers decide in which auction they wish to participate. I provide sufficient conditions for the existence of an equilibrium in which both sellers release information even if there are only two buyers in the market. This result is in contrast to previous findings reported in the literature showing that the optimal decision for a monopolist facing a fixed set of two buyers is to not release any information. Thus, the results of the paper suggest that competition between auctioneers strengthens the incentives to release information in markets in which selling mechanisms are second-price auctions. [ABSTRACT FROM AUTHOR]

This paper introduces the irregular N-gon solution, a new geometric method for constructing equilibrium distributions in the Colonel Blotto game with heterogeneous battlefield values, generalising known construction methods. Using results on the existence of tangential polygons, it derives necessary and sufficient conditions for the irregular N-gon method to be applied, given the parameters of a Blotto game. The method does particularly well when the battlefield values satisfy some clearly defined regularity conditions. The paper establishes the parallel between these conditions and the constrained integer partitioning problem in combinatorial optimisation. The properties of equilibrium distributions numerically generated using the irregular N-gon method are illustrated. They indicate that the realised allocations, weighted by battlefield value, are less egalitarian and depend more strongly on battlefield values than previously thought. In the context of the US presidential elections, the explicit construction of equilibria provides new insights into the relation between the size of a state and the campaign resources spent there by presidential candidates. [ABSTRACT FROM AUTHOR]

In a Nash equilibrium, players' rationality is mutual knowledge. However, both intuition and experimental evidence suggest that players do not know for sure the rationality of opponents. This paper proposes a new equilibrium concept, cautious equilibrium, that generalizes Nash equilibrium in terms of preferences in two person strategic games. In a cautious equilibrium, players do not necessarily know the rationality of opponents, but they view rationality as infinitely more likely than irrationality. For suitable models of preference, cautious equilibrium predicts that a player might take a "cautious" strategy that is not a best response in any Nash equilibrium. [ABSTRACT FROM AUTHOR]

This paper analyzes the equilibrium and welfare properties of an economy characterized by uncertainty and payoff externalities using a general model that nests several applications. Agents receive a private signal and an endogenous public signal, which is a noisy aggregate of individual actions, and causes an information externality. Agents in equilibrium underweight private information for a larger payoff parameter region in relation to when public information is exogenous. In addition, the socially optimal endogenous degree of coordination is lower than the socially optimal exogenous degree of coordination. The welfare effect of increasing the precision of the noise in the public signal has the same sign with endogenous or exogenous public information, but its magnitude differs. The social value of private information may be overturned in relation to when public information is exogenous: from positive to negative if agents in equilibrium coordinate more than is implied by the socially optimal exogenous degree of coordination, and the opposite if they coordinate less. [ABSTRACT FROM AUTHOR]

This paper studies models where the optimal response functions under consideration are not increasing in endogenous variables, and weakly increasing in exogenous parameters. Such models include games with strategic substitutes, and include cases where additionally, some variables may be strategic complements. The main result here is that the equilibrium set in such models is a non-empty, complete lattice, if, and only if, there is a unique equilibrium. Indeed, for a given parameter value, a pair of distinct equilibria are never comparable. Therefore, with multiple equilibria, some of the established techniques for exhibiting increasing equilibria or computing equilibria that use the largest or smallest equilibrium, or that use the lattice structure of the equilibrium set do not apply to such models. Moreover, there are no ranked equilibria in such models. Additionally, the analysis here implies a new proof and a slight generalization of some existing results. It is shown that when a parameter increases, no new equilibrium is smaller than any old equilibrium. (In particular, in n-player games of strategic substitutes with real-valued action spaces, symmetric equilibria increase with the parameter.) [ABSTRACT FROM AUTHOR]

Summary. Following the seminal works of Schmeidler (1989), Gilboa and Schmeidler (1989), roughly put, an agent’s subjective beliefs are said to be ambiguous if the beliefs may not be represented by a unique probability distribution, in the standard Bayesian fashion, but instead by a set of probabilities. An ambiguity averse decision maker evaluates an act by the minimum expected value that may be associated with it. In spite of wide and long-standing support among economists for indexation of loan contracts there has been relatively little use of indexation, except in situations of extremely high inflation. The object of this paper is to provide a (theoretical) explanation for this puzzling phenomenon based on the hypothesis that economic agents are ambiguity averse. The paper considers a general equilibrium model based on Magill and Quinzii (1997) with ambiguity averse agents, where both nominal and indexed bond contracts are available for trade and all relevant prices are determined endogenously. We obtain conditions which prompt an endogenous cessation of trade in indexed bonds: i.e., conditions under which there is no trade in indexed bonds in any equilibrium; only nominal bonds are traded. [ABSTRACT FROM AUTHOR]

This article presents a collection of papers dedicated to Marcel K. Richter, in appreciation of the fundamental impact that his research, mentoring, and personality has had on economics and on economists. Marcel K. Richter's research has taken economic theory to places it needed to go, and along the way has left tight, crisp, important, and beautifully elegant results. A good representative of Ket Richter's work is his 1966 "Econometrica" paper "Revealed Preference Theory." This paper has had a profound influence, not only on the problem of preference characterization, but also on the use of powerful logical tools in economic theory. Using set theory and mathematical logic, it provided a simple, clear, and general method to address the topic of consumer rationality, which strongly contrasted with the complex alternative literature on revealed preference and integrability theory. This was followed by "Rational Choice" and by a joint work with Leonid Hurwicz, "Revealed Preference Without Demand Continuity Assumptions," both published in "Preferences, Utility and Demand," edited by J. Chipman, L. Hurwicz, M. K. Richter and H. Sonnenschein. Revealed preference is the topic with which Marcel K. Richter is most associated.

This paper provides closed-form formulas for a multidimensional two-sided matching problem with transferable utility and heterogeneity in tastes. When the matching surplus is quadratic, the marginal distributions of the characteristics are normal, and when the heterogeneity in tastes is of the continuous logit type, as in Choo and Siow (J Polit Econ 114:172-201, ), we show that the optimal matching distribution is also jointly normal and can be computed in closed form from the model primitives. Conversely, the quadratic surplus function can be identified from the optimal matching distribution, also in closed-form. The closed-form formulas make it computationally easy to solve problems with even a very large number of matches and allow for quantitative predictions about the evolution of the solution as the technology and the characteristics of the matching populations change. [ABSTRACT FROM AUTHOR]

This paper studies relational contracts with partially persistent states, where the distribution of the state depends on the previous state. The optimal contracts have properties similar to those of stationary contracts in Levin (Am Econ Rev 93:835-857, ), but stationary contracts are no longer optimal. This paper characterizes the optimal contracts. Then, the paper considers two types of persistent states and shows that in both cases the joint surplus in the second best increases with the state. A sufficient condition for stationary contracts to be optimal is provided. [ABSTRACT FROM AUTHOR]

In labor market models as well as in exchange economies with indivisible goods gross substitutability is used as a property to guarantee the existence of competitive equilibria. This paper develops an easy way to check gross substitutability for utility functions concerning a finite set of indivisible goods (or employees) and money. Concavity is one of the conditions that has to be satisfied. Only one other, but similar, type of relation must be checked to guarantee gross substitutability. [ABSTRACT FROM AUTHOR]

Summary. The paper presents a human capital driven endogenous growth model which, in general, permits a multiplicity of equilibrium balanced growth paths. It is shown that allowing tot perfect capital mobility across countries increases the range of parameter values for which the model permits equilibrium indeterminacy. As opposed to the closed capital markets case, simple restrictions on preferences are no longer sufficient to eliminate the indeterminacy. Intuitively, under perfect capital mobility agents are able to smooth consumption completely. This induces an economy with open capital markets to behave like a closed economy with linear preferences thereby increasing the possibility of equilibrium indeterminacy. [ABSTRACT FROM AUTHOR]

This paper studies the sensitivity of economic equilibria to perturbations when the implicit function theorem cannot be applied on account of the presence of boundaries. It presents results from the mathematical programming literature which provide conditions under which equilibria are robust to perturbation and are locally unique Lipschitz continuous functions of parameters. Economic applications include search equilibrium, Cournot equilibrium and general equilibrium. [ABSTRACT FROM AUTHOR]

This paper considers populations of agents whose behavior when playing some underlying game is governed by perturbed best (or better) response dynamics with perturbation probabilities that depend log-linearly on payoffs, a class that includes the logit choice rule. A convention is a state at which every agent plays a strategy that corresponds to the same strict Nash equilibrium of the underlying game. For coordination games with zero payoff off-diagonal, it is shown that the difficulty of leaving the basin of attraction of a convention can be well approximated by only considering paths of transitions on which an identical perturbation repeatedly affects one of the populations. [ABSTRACT FROM AUTHOR]

This paper uses a general equilibrium model with collateralized borrowing to show that increases in risk can have ambiguous effects on leverage, loan margins, loan amounts, and asset prices. Increasing risk about future payoffs and endowments can lead to riskier loans with larger balances and lower spreads even when lenders are risk averse and borrowers can default. As well, increasing the covariance of either agents' endowments with the asset payoff can have ambiguous consequences for equilibrium. Though the effects are ambiguous, key determinants of how increased risk translates into changes in prices and allocations are the covariance of agents' endowments with the asset payoff, agents' risk aversion, and the location of increased risk in the distribution of future states. Some restricted changes in the borrower's or lender's endowments can have unambiguous but asymmetric effects on equilibrium. [ABSTRACT FROM AUTHOR]

In a partition model, we show that each maximin individually rational and ex ante maximin efficient allocation of a single good economy is implementable as a maximin equilibrium. When there are more than one good, we introduce three conditions. If none of the three conditions is satisfied, then a maximin individually rational and ex ante maximin efficient allocation may not be implementable. However, as long as one of the three conditions is satisfied, each maximin individually rational and ex ante maximin efficient allocation is implementable. Our work generalizes and extends the recent paper of de Castro et al. (Games Econ Behav 2015. doi:). [ABSTRACT FROM AUTHOR]

This paper provides sufficient conditions for comparing the choices of different players in games of strategic complements. The main results require a weak ordering relation on the best responses of players in the game and their constraint sets. Under additional restrictions, we can also compare their relative payoffs. We offer three applications of our idea to industrial organization and new models of behavioral economics. Specifically, we study horizontal mergers in oligopolies, competition among firms with differentiated demands and costs of production, and a model of biased perceptions. [ABSTRACT FROM AUTHOR]

We provide a direct proof of the existence of perfect equilibria in finite normal form games and extensive games with perfect recall. It is done by constructing a correspondence whose fixed points are precisely the perfect equilibria of a given finite game. Existence of a fixed point is secured by a generalization of Kakutani theorem, which is proved in this paper. This work offers a new approach to perfect equilibria, which would hopefully facilitate further study on this topic. We also hope our direct proof would be the first step toward building an algorithm to find the set of all perfect equilibria of a strategic game. [ABSTRACT FROM AUTHOR]

This paper considers a Ramsey model of linear capital and labor income taxation in which a benevolent government cannot commit ex-ante to a sequence of policies for the future. In this setup, if the government is forced to keep budget balance in every period, then it may not be able to sustain zero capital taxes in the long run, as shown in Benhabib and Rustichini (J Econ Theory 77:231-259, ) and Phelan and Stachetti (Econometrica 69:1491-1518, ). However, (Dominguez in J Econ Theory 135:159-170, ) shows that if the government is allowed to borrow and lend to households, the optimal capital income tax still converges to zero in the long run, as long as the value of defaulting is independent of the level of government debt. This paper provides a game theoretic setup with government debt where the value of the worst equilibrium only depends on the initial level of capital and can be determined in advance. This implies that under our assumptions the best sustainable equilibrium has zero capital taxes in the long run, even in the absence of government commitment. [ABSTRACT FROM AUTHOR]

The pure exchange model is the foundation of the neoclassical theory of value, yet equilibrium predictions and price adjustment dynamics for this model remained untested prior to the experiment reported in this paper. With the exchange economy replicated several times, prices and allocations in most experiment sessions adjust toward the competitive equilibrium in continuous double auction trading, though adjustment is much slower than in previous commodity flow (or perishable good) double auction market experiments. Price adjustment is evaluated by comparing its extent within each market replication (or trading period) to its extent across trading periods. More price adjustment occurs within trading periods than across trading periods, so price adjustment data are evaluated with the disequilibrium Hahn process model (Hahn and Negishi in Econometrica 30:463-469, ) of within-period trades. This paper introduces a stochastic version the Hahn process model and demonstrates that a linear approximation to this stochastic model yields an autoregressive process with a near unit root when the adjustment rate is low. In effect, the autoregressive price adjustment model studied extensively by time series econometricians over the past 30 years can be viewed as a reduced form of a stochastic disequilibrium exchange economy price adjustment model. Estimation of the model demonstrates that price adjustment in the exchange economy experiment is considerably slower than in economies without income effects, which suggests that the price discovery process may be a significant factor in the slow adjustment documented by applied econometricians. [ABSTRACT FROM AUTHOR]

This paper, which builds on Chipman (The economist's vision. Essays in modern economic perspectives, 131-162, ), analyzes a simple model formulated by Hurwicz (Jpn World Econ 7:49-74, ) of two agents-a polluter and a pollutee-and two commodities: 'money' (standing for an exchangeable private good desired by both agents) and 'pollution' (a public commodity desired by the polluter but undesired by the pollutee). There is also a government that issues legal rights to the two agents to emit a certain amount of pollution, which can be bought and sold with money. It is assumed that both agents act as price-takers in the market for pollution rights, so that competitive equilibrium is possible. The 'Coase theorem' (so-called by Stigler (The theory of price, ) asserts that the equilibrium amount of pollution is independent of the allocation of pollution rights. A sufficient condition for this was (in another context) obtained by Edgeworth (Giorn Econ 2:233-245, ), namely that preferences of the two agents be 'parallel' in the money commodity, whose marginal utility is constant. Hurwicz (Jpn World Econ 7:49-74, ) argued that this parallelism is also necessary. This paper, which provides an exposition of the problem, raises some questions about this result and provides an alternative necessary and sufficient condition. [ABSTRACT FROM AUTHOR]

Many conditions have been introduced to ensure equilibrium existence in games with discontinuous payoff functions. This paper introduces a new condition, called regularity, that is simple and easy to verify. Regularity requires that if there is a sequence of strategies converging to s* such that the players' payoffs along the sequence converge to the best-reply payoffs at s*, then s* is an equilibrium. We show that regularity is implied both by Reny's better-reply security and Simon and Zame's endogenous sharing rule approach. This allows us to explore a link between these two distinct methods. Although regularity implies that the limits of $${\epsilon}$$-equilibria are equilibria, it is in general too weak for implying equilibrium existence. However, we are able to identify extra conditions that, together with regularity, are sufficient for equilibrium existence. In particular, we show how regularity allows the technique of approximating games both by payoff functions and space of strategies. [ABSTRACT FROM AUTHOR]

This paper studies the implications for business cycle dynamics of heterogeneous expectations in a stochastic growth model. The assumption of homogeneous, rational expectations is replaced with a heterogeneous expectations model where a fraction of agents hold rational expectations and the remaining fraction adopt parsimonious forecasting models that are, in equilibrium, optimal within a restricted class. Our approach nests the literature on rational expectations in business cycle models with a recent approach based on adaptive learning. We demonstrate that (i.) heterogeneous expectations can lead to substantial improvement in the internal propagation of equilibrium business cycle models and (ii.) the internal propagation depends on the degree of heterogeneity. A calibrated model with heterogeneity provides a closer fit to business cycle data than its representative agent, rational expectations counterpart. [ABSTRACT FROM AUTHOR]

This paper sets up a monetary endogenous growth model with Benhabib–Farmer production externalities for an open economy, and then uses it to investigate the possibility of indeterminacy. Moreover, the paper examines how the monetary authorities will set its optimal anchor of the money growth rate from the viewpoint of welfare maximization. Several main findings emerge from the analysis. First, when investment does not involve adjustment costs, the monetary equilibrium is locally determinate regardless of the strength of the labor externality and the extent of world capital market imperfections. Second, in the presence of investment adjustment costs, the monetary equilibrium may exhibit indeterminacy when the aggregate increasing returns-to-scale in production is sufficiently strong. Third, in the presence of world capital market imperfections, the Friedman rule of a zero nominal interest rate fails to be optimal. Fourth, in the face of perfect world capital markets, the optimal nominal money growth rate is maintained at the rate that is conformable to the Friedman rule, regardless of whether investment involves adjustment costs or not. [ABSTRACT FROM AUTHOR]

This paper addresses the existence of Nash equilibria in one-way flow models in a number of different settings. In these models players form costly links with other players and obtain resources from them through the directed path connecting them. We find that heterogeneity in the costs of establishing links plays a crucial role for the existence of Nash networks. The paper also provides conditions for the existence of Nash networks in models where costs and values of links are heterogeneous. [ABSTRACT FROM AUTHOR]

In this paper we study a static link formation game under consent that has multiple Nash equilibria. In the literature, the use of coalitional refinements has been the standard approach to select among equilibria. Alternatively, based on the Global Games theory, a non cooperative equilibrium selection approach is proposed, so as to select those Nash equilibria that are robust to the introduction of incomplete information. Interestingly, the equilibrium selected is unique and it is in conflict with those predicted by the commonly used coalitional refinements. Furthermore, a conflict is found between stability and efficiency even when no such conflict exists with the coalitional refinements. [ABSTRACT FROM AUTHOR]

In this paper, we extend the Shapley–Shubik model to a two period financial economy, and essentially address the question of the existence of an equilibrium. More precisely, we show the existence of nice equilibria, i.e. situations in which prices for both assets and commodities are strictly positive. Even if the general lines of the proof are largely influenced by the paper of Dubey and Shubik (J Econ Theory 17:1–20, 1978), most of the arguments are new because of the financial nature of the economy. It forces us to deal with a generalized Nash equilibrium, and to proscribe the use of arguments which only work with a single cash-in-advance constraint. [ABSTRACT FROM AUTHOR]

This paper provides a formal generalization of Nash equilibrium for games under Knightian uncertainty. The paper is devoted to counterparts of the results of Glycopantis and Muir (Econ Theory 13:743–751, l999, Econ Theory 16:239–244, 2000) for capacities. We prove that the expected payoff defined as the integral of a payoff function with respect to the tensor product of capacities on compact Hausdorff spaces of pure strategies is continuous if so is the payoff function. We prove also an approximation theorem for Nash equilibria when the expected utility payoff functions are defined on the space of capacities. [ABSTRACT FROM AUTHOR]

This paper studies how communication amongst agents influences the equilibria of a financial economy. We set up a standard overlapping generations model with assets, while allowing for heterogeneous beliefs. The paper explicitly describes how communication causes the beliefs of the agents to be correlated. In particular, it is shown that communication may generate large fluctuations even if the unconditional probability beliefs themselves are independent. Because of the complex nature of the problem, we use simulations to examine the characteristics of the equilibria [ABSTRACT FROM AUTHOR]

This paper analyzes the existence of recursive equilibria in a class of convex growth models with incomplete markets. Households have identical CRRA-preferences, production displays constant returns to scale with respect to physical and human capital, and all markets are competitive. There are aggregate productivity shocks that affect aggregate returns to physical and human capital investment (stock returns and wages), and there are idiosyncratic shocks to human capital (idiosyncratic depreciation shocks) that only affect individual human capital returns. Aggregate and idiosyncratic shocks follow a joint Markov process. Conditional on the aggregate state, idiosyncratic shocks are independently distributed over time and identically distributed across households. Finally, households have the opportunity to trade assets in zero net supply with payoffs that depend on the aggregate shock, but markets are incomplete in the sense that there are no assets with payoffs depending on idiosyncratic shocks. It is shown that there exists a recursive equilibrium for which equilibrium prices (returns) only depend on the exogenous aggregate shock variable (the wealth distribution is not a relevant state variable). Moreover, the allocation associated with this recursive equilibrium is identical to the equilibrium allocation of an economy in which households live in autarky and face both aggregate and idiosyncratic risk. [ABSTRACT FROM AUTHOR]

This paper shows, in the benchmark one-sector Ramsey model, that indeterminacy and sunspots may occur when externalities are small, provided that capital and labor are more substitutable than in the usual Cobb-Douglas specification. Key to the results are the general formulations of both preferences and technology that we consider. In particular, indeterminacy is shown to occur under almost constant returns to scale provided that both concavity of utility for consumption is small enough and labor supply is close to indivisible. An important implication of the results is that, when labor supply is positively sloped, indeterminacy does not necessarily require the equilibrium wage-hours locus to be upward sloping. [ABSTRACT FROM AUTHOR]

This paper studies a class of general equilibrium economies in which the individuals’ endowments depend on privately observed effort choices and the financial markets are endogenous. The environment is modeled as a two-stage game. Individuals first make strategic financial-innovation decisions. They then act in a Radner-type economy with the previously designed securities. Consumption goods, portfolios, and effort levels are chosen competitively (i.e., taking prices as given). An equilibrium concept is adapted for these moral hazard economies and its existence is proven. It is shown through an example how incentive motives might lead to the endogenous emergence of financial incompleteness. [ABSTRACT FROM AUTHOR]

In this paper, we analyze the interaction between an incumbent's financial contract with a bank and its product market decisions in the face of a threat of entry, in a dynamic model with asymmetric information. The main results of the paper are: there exists a separating equilibrium with no limit pricing; the low-cost incumbent repays more to the bank in the first period due to the threat of entry; and there are parameter values for which the bank makes more profits with the threat of entry than without. [ABSTRACT FROM AUTHOR]

This paper provides conditions for the almost sure convergence of the least squares learning rule in a stochastic temporary equilibrium model, where regressions are performed on the past values of the endogenous state variable. In contrast to earlier studies, (Evans and Honkapohja, 1998; Marcent and Sargent, 1989), which were local analyses, the dynamics are studied from a global viewpoint, which allows one to obtain an almost sure convergence result without employing projection facilities. [ABSTRACT FROM AUTHOR]

Summary. This paper studies the extent to which diffusion approximations provide a reliable guide to equilibrium selection results in finite games. It is shown that they do for a class of finite games with weak learning provided that limits are taken in a certain order. The paper also shows that making mutation rates small does not in general select a unique equilibrium but making selection strong does. [ABSTRACT FROM AUTHOR]

Summary. The paper analyzes a two period general equilibrium model with individual risk, aggregate uncertainty and moral hazard. There is a large number of households, each facing two individual states of nature in the second period. These states differ solely in the household's vector of initial endowments, which is strictly larger in the first state (good state) than in the second state (bad state). In the first period each household chooses a non-observable action. Higher levels of action give higher probability of the good state of nature to occur, but lower levels of utility. Households' utilities are assumed to be separable in action and the aggregate uncertainty is independent of the individual risk. Insurance is supplied by a collection of firms who behave strategically and maximize expected profits taking into account that each household's optimal choice of action is a function of the offered contract. The paper provides sufficient conditions for the existence of equilibrium and shows that the appropriate versions of both welfare theorems hold. [ABSTRACT FROM AUTHOR]

Summary. This paper compares the sets of Nash, coalition-proof Nash and strong Nash equilibrium payoffs of normal form games which are closely related. We propose sufficient conditions for equivalent or closely related games to have identical sets of equilibrium payoffs. [ABSTRACT FROM AUTHOR]

Summary. This paper analyzes the equilibrium growth paths of two economies that are identical in all respects, except for the organization of their financial systems: in particular, one has a competitive banking system and the other has a monopolistic banking system. In addition, the sources of inefficiencies, as a result of monopoly banking, and their relationship to the existence of credit rationing are explored. Monopoly in banking tends to depress the equilibrium law of motion for the capital stock for either of two reasons. When credit rationing exists, monopoly banks ration credit more heavily than competitive banks. When credit is not rationed, the existence of monopoly banking leads to excessive monitoring of credit financed investment. Both of these have adverse consequences for capital accumulation. In addition, monopoly banking is more likely to lead to credit rationing than is competitive banking. Finally, the scope for development trap phenomena to arise is considered under both a competitive and a monopolistic banking system. [ABSTRACT FROM AUTHOR]

This paper studies partially revealing rational expectations equilibria. In a setting with a finite state space and a competitive market for real assets, there exists an open set of economies with such equilibria. They arise when informed agents have corner solutions. When partially revealing and fully revealing equilibria coexist, all Pareto constellations are possible: The partially revealing may Pareto dominate the fully revealing, the fully revealing may Pareto dominate the partially revealing, or the two cannot be Pareto ranked. [ABSTRACT FROM AUTHOR]

We introduce a relaxed Nash equilibrium concept for strategic form games, called quasi-Nash equilibrium, which exists in every diagonally transfer quasi-concave games. The quasi-Nash equilibrium has the property to be stable with respect to perturbations on both payoff functions and mistakes in playing pure strategy profiles. We compare our relaxed equilibrium with the Reny equilibrium (introduced in a recent paper) and give stability properties for the Reny equilibrium. [ABSTRACT FROM AUTHOR]

This paper incorporates endogenous credit constraints in a search model of unemployment. These constraints generate multiple equilibria supported by self-fulfilling beliefs. A stock market bubble emerges through a positive feedback loop mechanism. The collapse of the bubble tightens the credit constraints, causing firms to reduce investment and hirings. Unemployed workers are hard to find jobs generating high and persistent unemployment. A recession is caused by shifts in beliefs, even though there is no exogenous shock to the fundamentals. [ABSTRACT FROM AUTHOR]

This paper explores the role of public debt and fiscal deficits on factor productivity in an economy with credit market frictions and heterogeneous firms. When credit market conditions are sufficiently weak, low interest rates permit the government to run Ponzi schemes so that permanent primary deficits can be sustained. For small enough deficit ratios, the model has two steady states of which one is an unstable bubble and the other one is stable. The stable equilibrium features higher levels of credit and capital, but also a lower interest rate, lower total factor productivity and output. The model is calibrated to the US economy to derive the maximum sustainable deficit ratio and to examine the dynamic responses to changes in debt policy. A reduction in the primary deficit triggers an expansion of credit and capital, but it also leads to a deterioration of total factor productivity since more low-productivity firms prefer to remain active at the lower equilibrium interest rate. [ABSTRACT FROM AUTHOR]

This paper analyzes two equivalent equilibrium notions under asymmetric information: risk neutral rational expectations equilibria (rn-REE), and common knowledge equilibria. We show that the set of fully informative rn-REE is a singleton, and we provide necessary and sufficient conditions for the existence of partially informative rn-REE. In a companion paper (DeMarzo and Skiadas (1996)) we show that equilibrium prices for the larger class of quasi-complete economies can be characterized as rn-REE. Examples of quasi-complete economies include the type of economies for which demand aggregation in the sense of Gorman is possible (with or without asymmetric information), the setting of the Milgrom and Stokey no-trade theorem, an economy giving rise to the CAPM with asymmetric information but no normality assumptions, the simple exponential-normal model of Grossman (1976), and a case of no aggregate endowment risk. In the common-knowledge context, we provide necessary and sufficient conditions for a common knowledge posterior estimate, given common priors, to coincide with the full communication posterior estimate. [ABSTRACT FROM AUTHOR]

The paper is concerned with the following question: in addition to local uniqueness, what other conditions must be imposed to ensure global uniqueness of competitive equilibrium? The answer is provided within a standard framework involving excess demand functions. Conditions are identified which have the nice property that they are true close to a regular equilibrium. Uniqueness is established by considering an adjustment process and showing that under the mentioned conditions, every equilibrium is locally asymptotically stable and moreover the process itself is globally stable; uniqueness follows from an Arrow and Hahn (1971) result. Alternatively, the paper may be seen as identifying conditions under which there is a vectorfield satisfying the requirements of an uniqueness result due to Dierker (1974). [ABSTRACT FROM AUTHOR]

This paper derives the set of equilibria for common agency games in which the principals compete in piece rates and lump sum payments and one principal has incomplete information about the agent's preferences. We show that the uninformed principal's expected payoff function is discontinuous with respect to the identity of the marginal agent type. This discontinuity is shown to support an open set of equilibria. For games in which the first-best equilibrium strategies are measurable with respect to the uninformed principal's information partition, this result implies the existence of an open set of Pareto inefficient equilibria. [ABSTRACT FROM AUTHOR]

This paper studies price games played by a continuum of differentiated producers who face demands generated by additively separable preferences exhibiting a non-neighboring goods property. The examples of exact equilibria show that an asymmetric Chamberlian outcome is compatible with nonzero profits for nonmarginal firms and also with constant average costs, contrary to long sustained views. The paper tries also to short out the structure behind this class of examples and identify as general features the presence of nonperfectly elastic demands facing individual firms and the existence of an approximate Chamberlinian equilibrium. [ABSTRACT FROM AUTHOR]

This paper studies a sequential bargaining model of a decentralised market. A main objective is to explore the conditions under which the unique subgame perfect equilibrium outcome of the market game approximates the Walrasian outcome of the market. The three main messages that emerge from our results are as follows. First, contrary to conventional wisdom, frictionless markets need not be Walrasian. Second, the relative magnitudes of frictions can have a profound impact on the market outcome even in the limit as the absolute magnitudes of the frictions become negligible. And third, the relative magnitudes of certain types of frictions may have to be significantly large in order for markets to be Walrasian, reflecting that certain types of frictions are needed in the market in order to induce the Walrasian outcome. [ABSTRACT FROM AUTHOR]

This paper examines an economy in which agents with private information about their own productive capabilities seek to raise capital to fund their investment projects. We employ an equilibrium concept which is closely related to Coalition Proof Nash Equilibrium. In equilibrium, all agents who succeed in raising capital (entrepreneurs) are pooled; they all receive the same contract or consumption schedule. Entrepreneurs, however, are separated from those who fail to raise capital. This separation results in productive efficiency for the economy. If the economy has no viable alternative investment opportunity (other than agents' projects) then equilibrium allocations can be supported by a (non-intermediated) securities market. If there is a viable alternative, the equilibrium allocations cannot be supported by a securities market equilibrium. We interpret this case as suggesting the emergence of financial intermedary coalitions. [ABSTRACT FROM AUTHOR]