Perfectly competitive bilateral exchange without discounting |
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Authors: | Edward J Green |
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Institution: | Pennsylvania State University, USA |
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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. |
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Keywords: | Monetary bilateral exchange Random matching |
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