On the Equivalence of Walrasian and Non-Walrasian Equilibria in Contract Markets: The Case of Complete Contracts.

This paper explores two models of an economy in which contracts are exchanged. In the first model, contracts are exchanged on a competitive market in which traders' expectations concerning conditions that prevail within specific markets adjust until markets 'clear.' In the second model, contract designers compete directly against one another by offering alternate contracts. It is shown that Walrasian allocations correspond with the equilibrium allocations in the model with direct competition when the number of traders is made large. Furthermore, the expectational assumptions that drive the Walrasian analysis coincide with off the equilibrium path conjectures in the problem with direct competition. Copyright 1997 by The Review of Economic Studies Limited.