Rational Ponzi Games
AbstractWhen can a government run a rational Ponzi game, i.e., issue debt and never pay back any interest or principal? The transversalit y condition of each individual implies that such schemes require an i nfinity of lenders. Given this, horizons are unimportant: Ponzi games cannot be ruled out by assuming that agents have infinite horizons. The authors point out both the basic similarity of, and some key diff erences between, rational Ponzi games and asset price bubbles or fiat money. Regarding international debt, the analysis implies that what matters for the feasibility of rational Ponzi games are conditions in the lenders', not the borrowers', economy. Copyright 1988 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 29 (1988)
Issue (Month): 3 (August)
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- Stephen A. O'Connell & Stephen P. Zeldes, . "Rational Ponzi Games," Rodney L. White Center for Financial Research Working Papers 18-86, Wharton School Rodney L. White Center for Financial Research.
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