Bankruptcy and collateral in debt constrained markets
AbstractTypical models of bankruptcy and collateral rely on incomplete asset markets. In fact, bankruptcy and collateral add contingencies to asset markets. In some models, these contingencies can be used by consumers to achieve the same equilibrium allocations as in models with complete markets. In particular, the equilibrium allocation in the debt constrained model of Kehoe and Levine (2001) can be implemented in a model with bankruptcy and collateral. The equilibrium allocation is constrained efficient. Bankruptcy occurs when consumers receive low income shocks. The implementation of the debt constrained allocation in a model with bankruptcy and collateral is fragile in the sense of Leijonhufvud's "corridor of stability," however: If the environment changes, the equilibrium allocation is no longer constrained efficient.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 380.
Date of creation: 2006
Date of revision:
Publication status: Published in forthcoming in Macroeconomic Dynamics
Other versions of this item:
- Timothy J. Kehoe & David K. Levine, 2006. "Bankruptcy and Collateral in Debt Constrained Markets," NBER Working Papers 12656, National Bureau of Economic Research, Inc.
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Felix Kubler & Karl Schmedders, 2001.
"Stationary Equilibria in Asset-Pricing Models with Incomplete Markets and Collateral,"
1319, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Felix Kubler & Karl Schmedders, 2003. "Stationary Equilibria in Asset-Pricing Models with Incomplete Markets and Collateral," Econometrica, Econometric Society, vol. 71(6), pages 1767-1793, November.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007.
"A Quantitative Theory of Unsecured Consumer Credit with Risk of Default,"
Econometric Society, vol. 75(6), pages 1525-1589, November.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2002. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Centro de AltiÂsimos Estudios RiÂos PeÂ©rez(CAERP) 2, Centro de Altisimos Estudios Rios Perez (CAERP).
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
- William R. Zame, 1992.
"Efficiency and the Role of Default When Security Markets are Incomplete,"
UCLA Economics Working Papers
673, UCLA Department of Economics.
- 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.
- William R. Zame, 1990. "Efficiency and the Role of Default When Security Markets are Incomplete," UCLA Economics Working Papers 585, UCLA Department of Economics.
- Timothy J Kehoe & David K Levine, 1993.
"Debt Constrained Asset Markets,"
Levine's Working Paper Archive
1276, David K. Levine.
- Igor Livshits & James MacGee & Mich�le Tertilt, 2007.
"Consumer Bankruptcy: A Fresh Start,"
American Economic Review,
American Economic Association, vol. 97(1), pages 402-418, March.
- Igor Livshits & James MacGee & Michele Tertilt, 2005. "Consumer Bankruptcy: A Fresh Start," Discussion Papers 04-011, Stanford Institute for Economic Policy Research.
- Igor Livshits & James MacGee & Michele Tertilt, 2003. "Consumer bankruptcy: a fresh start," Working Papers 617, Federal Reserve Bank of Minneapolis.
- Kehoe, Timothy J & Levine, David K, 2001. "Liquidity Constrained Markets versus Debt Constrained Markets," Econometrica, Econometric Society, vol. 69(3), pages 575-98, May.
- Jaime Jose Orrillo Carhuajulca, 2000.
"Default and Exogenous Collateral in Incomplete Markets with a Continuum of States,"
Econometric Society World Congress 2000 Contributed Papers
1860, Econometric Society.
- Orrillo, Jaime, 2001. "Default and exogenous collateral in incomplete markets with a continuum of states," Journal of Mathematical Economics, Elsevier, vol. 35(1), pages 151-165, February.
- 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).
- Aloisio Araujo & M�rio Rui P�scoa & Juan Pablo Torres-Mart�nez, 2002. "Collateral Avoids Ponzi Schemes in Incomplete Markets," Econometrica, Econometric Society, vol. 70(4), pages 1613-1638, July.
- Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 163-193.
- David M. Kreps, 1982. "Multiperiod Securities and the Efficient Allocation of Risk: A Comment on the Black-Scholes Option Pricing Model," NBER Chapters, in: The Economics of Information and Uncertainty, pages 203-232 National Bureau of Economic Research, Inc.
- Pradeep Dubey & John Geanakoplos & Martin Shubik, 1988. "Default and Efficiency in a General Equilibrium Model with Incomplete Markets," Cowles Foundation Discussion Papers 879R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1989.
- Duffie, J Darrell & Huang, Chi-fu, 1985. "Implementing Arrow-Debreu Equilibria by Continuous Trading of Few Long-lived Securities," Econometrica, Econometric Society, vol. 53(6), pages 1337-56, November.
- Borghan Nezami Narajabad & Cyril Monnet, 2012. "Why Rent When You Can Buy? A Theory of Repurchase Agreements," 2012 Meeting Papers 647, Society for Economic Dynamics.
- Borys Grochulski, 2007.
"Optimal Personal Bankruptcy Design: A Mirrlees Approach,"
2007 Meeting Papers
1008, Society for Economic Dynamics.
- Borys Grochulski, 2008. "Optimal personal bankruptcy design : A Mirrlees approach," Working Paper 08-05, Federal Reserve Bank of Richmond.
- S. Viswanathan & Adriano A. Rampini, 2008. "Collateral, Financial Intermediation, and the Distribution of Debt Capacity," 2008 Meeting Papers 116, Society for Economic Dynamics.
- Borys Grochulski, 2010. "Optimal Personal Bankruptcy Design under Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 350-378, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janelle Ruswick).
If references are entirely missing, you can add them using this form.