Abstract
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.
Original language | English (US) |
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Pages (from-to) | 121-131 |
Number of pages | 11 |
Journal | Journal of Monetary Economics |
Volume | 57 |
Issue number | 2 |
DOIs | |
State | Published - Mar 1 2010 |
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics