The optimal bankruptcy rule in a trading economy using fiat money

Abstract : In several previous papers models of a monetary economy have been solved as a noncooperative game. The problem of granting credit and the possibility of bankruptcy was avoided by the artifact of considering that all traders were supplied with 'enough' of a commodity serving as a 'money' or means of payment so that there was no need to borrow. In this paper an outside bank, and borrowing are considered explicitly and the meaning of an optimal bankruptcy rule are considered. This paper deals primarily with problems in modelling and interpretation.

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