Harsh default penalties lead to Ponzi schemes: A counterexample
Martins-da-Rocha, Victor-Filipe; Vailakis, Yiannis (2012), Harsh default penalties lead to Ponzi schemes: A counterexample, Games and Economic Behavior, 75, 1, p. 277-282. http://dx.doi.org/10.1016/j.geb.2011.10.004
Type
Article accepté pour publication ou publiéDate
2012Journal name
Games and Economic BehaviorVolume
75Number
1Publisher
Elsevier
Pages
277-282
Publication identifier
Metadata
Show full item recordAbstract (EN)
Páscoa and Seghir (2009) presented two examples to show that in the presence of utility penalties for default, collateral requirements do not always eliminate the occurrence of Ponzi schemes and equilibria may fail to exist. This paper aims at providing a counterexample to their claim. We show that in the examples they consider, a competitive equilibrium with no trade can be supported due to unduly pessimistic expectations on asset deliveries.Subjects / Keywords
Infinite horizon economies; Default penalties; Collateral; Ponzi schemes; Pessimistic expectations; No-tradeRelated items
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