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A theory of economic equilibrium for incomplete financial markets in general real assets is developed in a new formulation with currency-denominated prices. The 'goods' are not only commodities, and they can influence utility through retention as an alternative to consumption. Perfect foresight is relinquished in a rolling horizon approach to markets which lets agents pursue long-term interests without being sure of future prices. The framework is that of an economy operating in a fiat currency that agents find attractive to retain, in balance with other needs. The attractiveness comes from Keynesian considerations about uncertainty which until now have not been brought in. The existence of equilibrium is established directly-not just generically-and moreover under weaker assumptions on endowments than before, except that utility functions are taken to be concave. Agents do not need to start out with, or end up with, positive amounts of everything. With a single currency denominating the units of account in all states, price indeterminacy is avoided and all contracts issued in the financial markets can be interpreted as 'real contracts.' Derivative instruments and collateralized contracts based on money prices are thereby encompassed for the first time. Transaction costs on sales of contracts, generated endogenously, lead to bid-ask spreads and in particular to a gap between interest rates for lending and borrowing money. [ABSTRACT FROM AUTHOR]

Holmstrom (Bell J Econ 13:324-340, ) argues that a principal is required to restrain moral hazard in a team: wasting output in certain states is required to enforce efficient effort, and the principal is a commitment device for the waste. Under competition in commodity and team-formation markets, I extend his model à la Prescott and Townsend (Econometrica 52(1):21-45, ) to show that competitive contracts can exploit the futures market to transfer output across states instead of wasting it. Thus, the futures market takes the place of a principal as a commitment device. Exploiting the duality of linear programming, I characterize the market environment and the contractual agreements for incentive-constrained efficiency. [ABSTRACT FROM AUTHOR]

Computational complexity is the subfield of computer science that rigorously studies the intrinsic difficulty of computational problems. This survey explains how complexity theory defines “hard problems”; applies these concepts to several equilibrium computation problems; and discusses implications for computation, games, and behavior. We assume minimal prior background in computer science. [ABSTRACT FROM AUTHOR]

This paper considers the problem of assigning a finite number of indivisible objects, like jobs, houses, positions, etc., to the same number of individuals. There is also a divisible good (money) and the individuals consume money and one object each. The class of fair allocation rules that are strategy-proof in the strong sense that no coalition of individuals can improve the allocation for all of its members, by misrepresenting their preferences, is characterized. It turns out that given a regularity condition, the outcome of a fair and coalitionally strategy-proof allocation rule must maximize the use of money subject to upper quantity bounds determined by the allocation rule. If available money is nonnegative, objects may be jobs and the distribution of money a wage structure. If available money is negative, the formal model may reflect a multi-object auction. In both cases fairness means equilibrium, i.e., that each individual receives a most demanded object. [ABSTRACT FROM AUTHOR]

We study a class of stochastic Overlapping generations (OLG) economies that have one-memory equilibria, that is equilibria that are determined by the current and past realizations of the states of uncertainty. This class is negligible, but important. In particular, it contains all the known examples of nonexistence of recursive equilibrium. We show that, within this restricted domain, the existence of recursive equilibrium is actually typical, and such examples are therefore nonrobust. [ABSTRACT FROM AUTHOR]

We develop a multi-period general equilibrium model of bank deposit, credit, and interim inter-bank loan markets in which banks initially specialize in their choices of debtors, leading to under-diversification, but nevertheless become entwined via inter-bank markets, leading to the fortunes of one bank affecting the profits and default rates of the other in a sequential manner. Lack of (full) diversification among credit risks arises in our model owing to a relative profit argument in each banker’s utility function, which is otherwise risk- and default-averse. We examine its implications for the welfare of depositors and debtors. [ABSTRACT FROM AUTHOR]