Equilibrium adjustment of disequilibrium prices

We consider an exchange economy in which price rigidities are present. In the short run the non-numeraire commodities have a exible price level with respect to the numeraire commodity but their relative prices are mutually fixed. In the long run prices are assumed to be completely exible. For a given price level and fixed relative prices, markets can be equilibrated by means of quantity rationing on demand and supply. Keeping markets in equilibrium through rationing, we provide an adjustment process in prices and quantities converging from a trivial equilibrium with complete demand rationing on all non-numeraire markets to a Walrasian equilibrium. Along the path initially all relative prices are kept fixed and the price level is increased. Rationing schemes are adjusted to keep markets in equilibrium. Doing so the process reaches a short run equilibrium with only demand rationing and no rationing on the numeraire and at least one of the other commodities. The process allows for a downward price adjustment of non-rationed non-numeraire commodities and reaches a Walrasian equilibrium in the long run.Equilibrium Theory;market economy;Prices;Disequilibrium Theory;Rationing;economic theory

Non-Trivial Equilibrium in an Economy With Stochastic Rationing

Stochastic rationing when the market does not clear draws attention because both Dreze (1975) and Benassy (1975) quantity-constrained equilibria have some undesirable features. Gale (1978)gave the existence proof of trade under uncertainty. His stochastic rationing depends on all the individual effective demands. It is too vague to characterize a rationing mechanism. Moreover, his assumption to ensure a non-trivial equilibrium is economically not clear. In this paper we extend Green (1978) to characterizing the rationing scheme as the individual effective demand times the rationing number which is a function of the aggregate quantity signals. We also construct an economy with money and overlapping generations. We show the existence of the non-trivial equilibrium and provide an example of a non-Wairasian equilibrium at the Walrasian equilibrium prices.

Who and how should participate in health care priority setting? Evidence from a Portuguese survey

This article provides highlights of the evolution of the health care rationing debate towards a more transparent and open approach involving public participation. Discretionary models that have dominated health sector decision-making are being questioned by different sectors of society. Using data from 442 college students, we explore public’s views on its involvement in health care rationing decisions. Findings suggest that although citizens wish to be consulted, they believe doctors should play the most important role on the rationing decisions. Nonetheless, the confidence in doctors is not independent of the criteria used to support their decisions.Priorities setting, Public involvement; Explicit rationing; Health-care.

Rationed Care: Assessing the Support Needs of Informal Carers in English Social Services Authorities

The passing of the Carers (Recognition and Services Act) 1995 was a step forward in trying to ensure that people who provide informal care to disabled, sick or elderly relatives or friends are properly recognised and properly supported. The Carers Act gave informal carers the right to an assessment of their own needs, and this article is based on a study into the impact of the legislation in four local authority social services departments. It is argued that the vision of supporters of the Carers Act, namely to achieve real benefits for many carers, has yet to be realised. The analysis draws on Klein et al.’s (1996) framework of service rationing strategies to demonstrate that decisions about priority setting and different forms of rationing of social care took place at three different levels: national government, local authority and front-line practitioner. Evidence is presented to show that some carers chose to impose rationing on themselves by reducing their demands. The article concludes with comments on the implications of rationing decisions for policy and practice

Inequality Preserving Rationing

The present paper considers rationing problems interpreted as e.g. bankruptcy problems or taxation problems. We demonstrate that among the continuous and order-preserving rationing methods, theproportional method is the only rationing method that preserves inequality in both gains and losses.rationing; inequality preservation; taxation; manipulation; proportional method

Direct Elicitation of Credit Constraints: Conceptual and Practical Issues with an Empirical Application to Peruvian Agriculture

This paper provides a methodological bridge leading from the well-developed theory of credit rationing to the less developed territory of empirically identifying credit constraints. We begin by developing a simple model showing that credit constraints may take three forms: quantity rationing, transaction cost rationing, and risk rationing. Each form of non-price rationing adversely affects household resource allocation and thus should be accounted for in empirical analyses of credit market performance. We then outline a survey strategy to directly classify households as credit unconstrained or constrained and, if constrained, to further identify which of the three non-price rationing mechanisms is at play. We discuss several practical issues that arise due to the use of a combination of “factual” and “interpretative” survey questions. Finally, using a data set from northern Peru, we demonstrate the importance of accounting for all three forms of credit constraints by estimating the increase in farm production that would result from relaxing credit constraints. The inclusion of transaction- and risk-rationed households in the constrained group results in an estimated impact that is twice as large as the impact when only quantity rationed households are considered constrained.Financial Economics,

Single-Name Credit Risk, Portfolio Risk, and Credit Rationing

This paper introduces non-diversifiable risk in the Stiglitz-Weiss adverse selection model, so that an increase in the average riskiness of the borrower pool causes higher portfolio risk. This opens up the possibility of equilibrium credit rationing. Comparative statics analysis shows that an increase in risk aversion turns a two-price equilibrium into a rationing equilibrium. A two-price equilibrium is more inefficient than a rationing equilibrium, and a usury law that rules out the higher of the two interest rates can be welfare-improving. Contrary to the common result, the equilibrium may be characterized by over-investment.asymmetric information; credit rationing

Do banking relationships improve credit conditions for Spanish SMEs?

Small and medium-sized companies are extremely important for the Spanish economy. However, they face difficulties when trying to obtain financing (credit rationing). As a result, and given their limited possibilities to obtain finance in the capital market, they turn to the credit market, which is the main provider of funds for such companies. The main aim of this study is to provide an insight into the banking relationships that are developed in this market and their impact on credit rationing. Previous literature has studied this situation by focusing on price rationing and quantity rationing. This study furthers research into banking relationships by examining the effects that these relationships may have on compensation demanded for debt and the relationship with long-term credit rationing. After studying 386 SMEs listed in the Spanish Guide of Exporting Companies, the main conclusions drawn were as follows: i) SMEs working with larger numbers of financial entities and with longer relationships with these entities enjoy better access to credit; ii) SMEs that develop banking relationships by contracting financial products manage to reduce their credit costs; iii) SMEs that have longer banking relationships with banking entities benefit from better long-term credit conditions; and iv) the maintenance of banking relationships through the rendering of services reduces bank requirements in terms of guarantees in credit applications

Credit Constraints and Productivity in Peruvian Agriculture

This paper evaluates the performance of a rural credit market in Peru. We develop a model that shows that collateral requirements imposed by lenders in response to asymmetric information can lead not just to quantity rationing but also to transaction cost rationing and risk rationing. Just like quantity rationing, these two additional forms of non-price rationing adversely affect farm resource allocation and productivity. We test the insights of the model using a panel data set from Northern Peru. We estimate the returns to productive endowments for constrained and unconstrained households using a switching regression model. We find that, consistent with the theory, productivity is independent of endowments for unconstrained households but is tightly linked to endowments for constrained households. We estimate that credit constraints lower the value of agricultural output in the study region by 26%.Financial Economics, International Development,

Money and Credit in a Production Economy

In this paper we combine liquidity constrained lenders and borrowers in a market for investment projects that is characterized by incomplete information. The assumption of different probability distributions of the investment projects creates an adverse selection problem which gives rise to credit rationing in the loan market. Monetary policy has real effects, interacts with both the degree of liquidity and the degree of credit rationing, and alters the aggregate level of capital stock and its marginal productivity.credit rationing, cash-in-advance constraints, investment