Economic equilibrium and financial networks

In this paper, we consider the general economic equilibrium problem in whic h each agent seeks to determine his optimal composition of commodities give n a fixed budget and a fixed number of each commodity in the economy. We co nstruct the network underlying each agent's optimization problem and then d erive the equilibrium conditions and the equivalent variational inequality formulation. We present certain qualitative properties of the equilibrium p attern and identify the financial network that represents the system in equ ilibrium. Finally, we provide a numerical example illustrating the model. T his work bridges general economic equilibrium and financial networks. (C) 1 999 Elsevier Science Ltd. All rights reserved.