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Harsh default penalties lead to Ponzi schemes: A counterexample

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Date
2012
Dewey
Economie financière
Sujet
Infinite horizon economies; Default penalties; Collateral; Ponzi schemes; Pessimistic expectations; No-trade
JEL code
D52; D91
Journal issue
Games and Economic Behavior
Volume
75
Number
1
Publication date
2012
Article pages
277-282
Publisher
Elsevier
DOI
http://dx.doi.org/10.1016/j.geb.2011.10.004
URI
https://basepub.dauphine.fr/handle/123456789/8093
Collections
  • CEREMADE : Publications
Metadata
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Author
Martins-da-Rocha, Victor-Filipe
Vailakis, Yiannis
Type
Article accepté pour publication ou publié
Abstract (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.

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