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Harsh default penalties lead to Ponzi schemes

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Author Info
Páscoa, Mário Rui
Seghir, Abdelkrim

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Abstract

In the presence of utility penalties, collateral requirements do not always eliminate the occurrence of Ponzi schemes. Harsh utility penalties may induce effective payments over collateral recollection values. In this event, loans can be larger than collateral costs and Ponzi schemes become possible.

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File URL: http://www.sciencedirect.com/science/article/B6WFW-4PWF0RC-1/2/a73688f6841bf3fb9e58b251407b3834
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Publisher Info
Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 65 (2009)
Issue (Month): 1 (January)
Pages: 270-286
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Handle: RePEc:eee:gamebe:v:65:y:2009:i:1:p:270-286

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Web page: http://www.elsevier.com/locate/inca/622836

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Related research
Keywords: Equilibrium Incomplete markets Default Collateral Utility penalties Ponzi schemes;

Cited by:
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  1. Emma Moreno Garcia & Juan Pablo Torres-Martinez, 2007. "Equilibrium with default-dependent credit constraints," Textos para discussão 540, Department of Economics PUC-Rio (Brazil). [Downloadable!]
  2. Ferreira, Thiago Revil T. & Torres-Martínez, Juan Pablo, 2009. "The impossibility of effective enforcement mechanisms in collateralized credit markets," MPRA Paper 13781, University Library of Munich, Germany, revised Nov 2009. [Downloadable!]
  3. Aloisio Araujo & Mário R. Páscoa & Juan Pablo Torres-Martínez, 2006. "Bubbles, Collateral and Monetary Equilibrium," Levine's Working Paper Archive 122247000000001055, David K. Levine. [Downloadable!]
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  4. Abdelkrim Seghir & Juan Torres-Martínez, 2008. "Wealth transfers and the role of collateral when lifetimes are uncertain," Economic Theory, Springer, vol. 36(3), pages 471-502, September. [Downloadable!] (restricted)
    Other versions:
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