Premium
UNIQUE MARKOV EQUILIBRIUM UNDER LIMITED COMMITMENT
Author(s) -
Bloise Gaetano
Publication year - 2020
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12438
Subject(s) - solvency , ergodic theory , mathematical economics , competitive equilibrium , monotone polygon , markov chain , markov perfect equilibrium , mathematical optimization , markov process , set (abstract data type) , economics , sequential equilibrium , computer science , nash equilibrium , mathematics , equilibrium selection , game theory , repeated game , finance , statistics , machine learning , market liquidity , programming language , mathematical analysis , geometry
I develop a recursive method for the characterization of competitive equilibrium under limited commitment with not‐too‐tight solvency constraints. The reputational mechanism is fragile, as it sustains constrained efficiency as well as a large set of constrained inefficient equilibria. However, I establish that the only strongly ergodic Markov equilibrium with trade is constrained efficient. The method relies on a planning program along with the theory of monotone concave operators. It is suitable for other applications to macroeconomics and dynamic contracts.