Competitive Equilibria in Matching Models with Financial Constraints

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Abstract

We consider the one-to-one two-sided matching with contracts model in which buyers face financial constraints. In this model there is a stable outcome, but not necessarily a competitive equilibrium as defined in the standard way. We propose a new equilibrium notion, quantity-constrained competitive equilibrium (QCCE) that allows buyers to form rational expectations on the lack of supply when their financial constraints are binding. We show the existence of QCCEs and establish the equivalence among QCCE outcomes, stable outcomes, and core outcomes. We also analyze the existence of QCCEs with uniform prices, the lattice property of QCCEs, and the rural hospital theorem of QCCEs. We finally examine the relation between models with financial constraints and models with price controls.
Original languageEnglish
PublisherMaastricht University, Graduate School of Business and Economics
DOIs
Publication statusPublished - 1 Apr 2019

Publication series

SeriesGSBE Research Memoranda
Number007

JEL classifications

  • c71 - Cooperative Games
  • c78 - "Bargaining Theory; Matching Theory"
  • d45 - "Rationing; Licensing"
  • d52 - Incomplete Markets

Keywords

  • financial constraints
  • matching with contracts
  • stable outcome
  • quantity-constrained competitive equilibrium
  • equivalence result
  • lattice property
  • core outcome
  • rural hospital theorem

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