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Competitive Equilibria With Incomplete Markets and Endogenous Bankruptcy

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  • Sabarwal Tarun

    (University of Texas at Austin)

Abstract

This paper constructs a model of an exchange economy in which bankruptcy arises in a manner similar to what we observe. Compared to related models, this model is a more realistic representation of some markets in which intertemporal assets are traded. Using standard and natural assumptions, it is shown that every economy represented by this model has an equilibrium. Therefore, bankruptcy can co-exist with smoothly functioning competitive markets in fairly general economies. Examples highlight some welfare effects of bankruptcy.

Suggested Citation

  • Sabarwal Tarun, 2003. "Competitive Equilibria With Incomplete Markets and Endogenous Bankruptcy," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-42, January.
    • Handle: RePEc:bpj:bejtec:v:contributions.3:y:2003:i:1:n:1
    DOI: 10.2202/1534-5971.1060
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    Citations

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    Cited by:

    1. Madan, Dilip B., 2004. "Monitored financial equilibria," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2213-2235, September.
    2. Miguel A. Iraola & Juan Pablo Torres-Martínez, 2012. "Liquidity Contractions and Prepayment Risk on Collateralized Asset Markets," Working Papers wp364, University of Chile, Department of Economics.
    3. John Geanakoplos & William Zame, 2014. "Collateral equilibrium, I: a basic framework," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(3), pages 443-492, August.
    4. repec:onb:oenbwp:y::i:172:b:1 is not listed on IDEAS
    5. Rubén Poblete-Cazenave & Juan Torres-Martínez, 2013. "Equilibrium with limited-recourse collateralized loans," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(1), pages 181-211, May.
    6. Li Gan & Tarun Sabarwal & Shuoxun Zhang, 2010. "Personal Bankruptcy: Reconciling Adverse Events and Strategic Timing Hypotheses Using Heterogeneity in Filing Types," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201008, University of Kansas, Department of Economics, revised May 2011.
    7. Miguel A. Iraola & Juan Pablo Torres-Martinez, 2013. "Liquidity Contractions, Incomplete Financial Participation and the Prevalence of Negative Equity Non-Recourse Loans," Working Papers 2013-08, University of Miami, Department of Economics.
    8. Jürgen Eichberger & Klaus Rheinberger & Martin Summer, 2014. "Credit risk in general equilibrium," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(2), pages 407-435, October.
    9. Li Gan & Tarun Sabarwal, 2005. "A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy," NBER Working Papers 11763, National Bureau of Economic Research, Inc.
    10. M. Udara Peiris & Dimitrios P. Tsomocos, 2019. "International monetary equilibrium with default," Chapters, in: Financial Regulation and Stability, chapter 10, pages 259-269, Edward Elgar Publishing.
    11. Wei Ma, 2015. "A Constructive Proof of the Existence of Collateral Equilibrium for a Two-Period Exchange Economy Based on a Smooth Interior-Point Path," Computational Economics, Springer;Society for Computational Economics, vol. 45(1), pages 1-30, January.
    12. Iraola, Miguel A. & Torres-Martínez, Juan Pablo, 2014. "Equilibrium in collateralized asset markets: Credit contractions and negative equity loans," Journal of Mathematical Economics, Elsevier, vol. 55(C), pages 113-122.
    13. Jean-Marc Bottazzi & Mario R. Pascoa & Guillermo Ramirez, 2017. "Determinants of repo haircuts and bankruptcy," Nova SBE Working Paper Series wp615, Universidade Nova de Lisboa, Nova School of Business and Economics.
    14. Aloisio Araujo & J. Mauricio Villalba, 2022. "Equilibrium efficiency with secured and unsecured assets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(4), pages 1025-1049, June.

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