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Rationing and rationality

Huck, S.; (1996) Rationing and rationality. European Journal of Political Economy , 12 (4) pp. 641-649. 10.1016/S0176-2680(96)00021-3.

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Abstract

This paper investigates a simple three-good two-sector macromodel with fixed prices. In order to omit any ad hoc assumptions about the market outcomes we analyse the model as a game played by (fully) rational players. Whereas the notion of rationality underlying the concept of Nash equilibria implies a multiplicity of solutions (with different trades and different excess demands) the refined notion of uniformly perfect equilibria yields uniqueness. Interestingly, the unique solution implies excess demands differing from previously discussed suggestions. Accordingly, the amount of involuntary unemployment may here be different from those in former models even though transactions are the same. In principle, the model provides a reasonable basis to interpret the magnitude of excess demands, what seems important since excess demands serve as signals not only for markets but also for policy makers.

Type: Article
Title: Rationing and rationality
DOI: 10.1016/S0176-2680(96)00021-3
Publisher version: http://dx.doi.org/10.1016/S0176-2680(96)00021-3
Language: English
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/16609
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