General equilibrium with endogenous uncertainty and default
AbstractIn this paper we study the introduction of new assets which are oftenly observed to be defined in expected values rather than state by state, called the Arrow-Lind-Malinvaud (ALM) assets. We demonstrate that individual default emerges naturally in an economy where such ALM assets are introduced without completing all contingency markets. We further provide conditions under which individual default is propagated endogenously into a collective risk of widespread default in general equilibrium.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Mathematical Economics.
Volume (Year): 42 (2006)
Issue (Month): 4-5 (August)
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Web page: http://www.elsevier.com/locate/jmateco
Other versions of this item:
- Graciela Chichilnisky & Ho-Mou Wu, 2006. "General equilibrium with endogenous uncertainty and default," Discussion Papers 0506-29, Columbia University, Department of Economics.
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