In spite of their importance in real economics, multiple equilibria in closed exchange and production-and-exchange economies are usually ignored in macroeconomic models. We argue that default and bankruptcy laws create conditions for a unique equilibrium. We report experimental evidence on the effectiveness of assigning default penalties on fiat money to resolve this multiplicity and select a s...

This paper analyzes the dynamic interactions between the precision of information, technological development, and welfare within an overlapping generations model. More precise information about idiosyncratic production shocks has ambiguous effects on technological progress and welfare, which depend critically on the risk sharing capacity of the economy’s financial system. For example, we show t...

This paper proposes a simple model for understanding transaction costs – their composition, size and policy implications. We distinguish between investments in institutions that facilitate exchange and the cost of conducting exchange itself. Institutional quality and market size are determined by the decisions of risk averse agents and conditions are discussed under which the efficient allocati...

This paper uses a New Monetarist framework to study the trade of indivisible goods with divisible money in a frictional market. We first derive conditions under which stationary equilibrium exists, and then show that if equilibrium exits, it is unique. The uniqueness result is due to the commitment and coordination nature of the pricing mechanisms. Money is superneutral in the model with genera...

We study pure exchange economies with symmetries on preferences up to taste intensity transformations. In a 2-person, 2-good endowment economy, we show that bilateral symmetry on each utility functional precludes a rectangle in the Edgeworth box as the location of Pareto optimal allocations. Under strictly quasi-concave preferences, a larger set can be ruled out. The inadmissible region is stil...

We examine the impact of risk-based portfolio constraints on asset prices in an exchange economy. We show that constrained agents scale down their portfolio and behave locally like power utility investors with risk aversion that depends on current market conditions. In contrast to previous results in the literature, we show that the imposition of constraints dampens fundamental shocks, challeng...

Stochastic stability is applied to the problem of exchange. We analyze the stochastic stability of two dynamic trading processes in a simple housing market. In both models traders meet in pairs at random and exchange their houses when trade is mutually beneficial, but occasionally they make mistakes. The models differ in the probability of mistakes. When all mistakes are equally likely, the set...

This paper analyses alternative ‘regimes’ (i.e. profiles of opportunity sets for individuals) for an exchange economy, without assuming that individuals act on coherent preferences. A Strong Opportunity Criterion is proposed. This extends the requirements of McQuillin and Sugden’s (2012) Opportunity Criterion to every set of individuals in an economy. The concept of a ‘market-clearing single-pr...

I develop an analytical general-equilibrium model to explain economic sources of businesscycle pattern of aggregate stock market returns. With concave production functions and capital accumulation, a technology shock has a pro-cyclical direct effect and a counter-cyclical indirect effect on expected returns. The indirect effect, reflecting the “feedback” effect of consumers’ behavior on asset r...

This paper deals with the problem of incentive mechanism design in non-convex production economies when production sets and preferences both are unknown to the designer. We consider Nash-implementation of loss-free, average cost, marginal cost, voluntary trading, and quantity-taking pricing equilibrium allocations in economies involving increasing returns to scale or more general types of non-c...