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Endogenous Default Penalties in Nominal Incomplete Markets

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Author Info

  • Nuno Gouveia

    (CERMSEM, Cermsem Cnrs-Umr 8095, Universit¡äe Paris 1)

  • Abdelkrim Seghir

    (American University in Cairo, Department of Economics)

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    Abstract

    This paper endogeneizes the utility penalties, initiated by Dubey, Geanakoplos and Shubik (2005), by introducing a benevolent central planner choosing the value of marginal default utility penalties for each consumer. We also prove equilibrium existence with endogenous default penalties for incomplete markets with nominal assets.

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    File URL: http://www.aeconf.net/Articles/Nov2009/aef100208.pdf
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    Bibliographic Info

    Article provided by Society for AEF in its journal Annals of Economics and Finance.

    Volume (Year): 10 (2009)
    Issue (Month): 2 (November)
    Pages: 391-418

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    Handle: RePEc:cuf:journl:y:2009:v:10:i:2:p:391-418

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    Related research

    Keywords: Equilibrium; Endogenous; default penalties; Incomplete markets; JEL Classification Numbers;

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    References

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    1. Pradeep Dubey & John Geanakoplos & Martin Shubik, 2001. "Default and Punishment in General Equilibrium," Cowles Foundation Discussion Papers 1304, Cowles Foundation for Research in Economics, Yale University.
    2. Páscoa, Mário Rui & Seghir, Abdelkrim, 2009. "Harsh default penalties lead to Ponzi schemes," Games and Economic Behavior, Elsevier, vol. 65(1), pages 270-286, January.
    3. Geanakoplos, John, 1990. "An introduction to general equilibrium with incomplete asset markets," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 1-38.
    4. Zame, William R, 1993. "Efficiency and the Role of Default When Security Markets Are Incomplete," American Economic Review, American Economic Association, vol. 83(5), pages 1142-64, December.
    5. Páscoa, Mario Rui & Araújo, Aloísio Pessoa de & Torres-Martínez, Juan Pablo, 2001. "Collateral Avoids Ponzi Schemes in Incomplete Markets," Economics Working Papers (Ensaios Economicos da EPGE) 419, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    6. Gale, D. & Mas-Colell, A., 1975. "An equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(1), pages 9-15, March.
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