Publication Date: July 2009
The enlargement of the general-equilibrium structure to allow default subject to penalties results in a construction of a simple mechanism for selecting a unique competitive equilibrium. We consider economies for which a common credit money can be applied to uniquely select any competitive equilibrium with suitable default penalties. We identify two classes of such economies. One consists of economies with utility functions being homogeneous of degree 1; the other consists of economies with the number of consumers equal to the number of commodities and traders having quasi-linear utility functions with respect to diﬀerent commodities.
Competitive equilibrium, Credit mechanism, Marginal utility of income, Welfare economics
JEL Classification Codes: D5, C72, E4
Published in Journal of Economics (June 2012), 106(2): 119-132 [DOI]