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Money in Consumption-Loan Type Models: An Addendum

Cass, David (1979) Money in Consumption-Loan Type Models: An Addendum. Social Science Working Paper, 268. California Institute of Technology , Pasadena, CA. (Unpublished)

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In the Cass, Okuno, and Zilcha (1979), we presented several examples of consumption-loan type models exhibiting the nonexistence of any competitive equilibrium which is Pareto optimal. One sort of example—involving nonmonotonicity in tastes—seemed very special. Evidently, it depended on having just the right combination of some consumption satiation together with some boundary endowments. We conjectured that such speciality wasn't essential to the intuitive proposition being advanced, that somewhat less than total satiation might unfavorably restrict potential intertemporal market transfers—even given the institution of money, in its role as a store of value, as a common means for facilitating trade between the present and the future. Rather, we proposed as a more likely reason for such speciality the particular analytic methodology being utilized, the limitation to considering only models for which competitive equilibria could be essentially characterized as the nonnegative solutions to a first order difference equation (and thus completely represented in terms of a two-dimensional diagram). It turns out that while our intuition was correct, our reasoning wasn't. In fact, it is now apparent that the only operative constraint was simply our lack of sufficient ingenuity.

Item Type:Report or Paper (Working Paper)
Additional Information:This note was written during my visit as a Sherman Fairchild Distinguished Scholar at California Institute of Technology. I am very grateful to Caltech—especially its fine group of social scientists—for providing me this excellent opportunity to conduct uninterrupted research in such a congenial environment. Published as Cass, David. "Money in Consumption Loan Type Models: An Addendum." The Collected Scientific Work of David Cass 21 (2011): 91. Addendum to D. Cass, M. Okuno and I. Zilcha, The Role of Money in Supporting the Pareto Optimality of Competitive Equilibrium in Consumption-Loan Type Models, J. Econ. Theory 20 (1979), 41-80.
Group:Social Science Working Papers
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Sherman Fairchild FoundationUNSPECIFIED
Series Name:Social Science Working Paper
Issue or Number:268
Record Number:CaltechAUTHORS:20171016-164701605
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82398
Deposited By: Jacquelyn Bussone
Deposited On:17 Oct 2017 23:19
Last Modified:03 Oct 2019 18:54

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