Bilateral economies: A game-theoretic analysis of general economic equilibrium

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Yvan Lengwiler (1994). Doctoral Dissertation #1554, University of St.Gallen, Switzerland.

We present a model of decentralized trading without anonymous markets, central auctioneer, or prices. This situation is modeled as a static game of complete information. The study of this game leads us in a natural fashion to much more general markets than the one we know from Walrasian analysis. Especially, the existence and shape of markets themselves are endogenous, and are decided upon by the decentralized agents. A specially tailored solution concept is presented. We find that in the barter case there are many non-Walrasian and inefficient equilibria. However, only the Walrasian equilibria survive the introduction of commodity money. The model achieves two goals: lt serves as a foundation of Walrasian analysis by doing away with the auctioneer. At the same time it gives money a new role as a coordinating device which is not based on informational problems or transaction costs, but rather on its role as a unit of account.