Assumptions And Conditions In The Arrow-Debreu Equilibrium Model
In general, there are two ways of financing, direct finance and indirect finance. In direct finance, households directly purchase the securities issued by firms through securities market. Thus, households have to judge and absorb firm¡¦s credit risks directly. On the other hand, in indirect finance, firm¡¦s credit risks are judged and absorbed by financial intermediaries who mediate funds collected from households to firms. Both financing methods play an important role in whole economic activities.
Simply speaking, there are four main players involved in financing activities. Each player has different specific functions that related to the others, financing activities would not be able to be held if one of them were not exist. The Arrow-Debreu General Equilibrium model in direct/indirect finance explains the functions of each player, and the relationship between them as shown below.
Arrow-Debreu General Equilibrium Model
Financial Markets
Bf + Bb = Bh......
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Approximate Pages: 6 (250 words per double-spaced page)
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Assumptions And Conditions In The Arrow-Debreu Equilibrium Model
Assumptions and conditions in the Arrow-Debreu Equilibrium model. In general, there
are two ways of financing, direct finance and indirect finance. ...
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