Asset prices, debt constraints and inefficiency
Abstract
In this paper, we consider economies with (possibly endogenous) solvency constraints under uncertainty. Constrained ine±ciency corresponds to a feasible redistribution yielding a welfare improvement beginning from ev- ery contingency reached by the economy. A sort of Cass Criterion (Cass [10]) completely characterizes constrained ine±ciency. This criterion involves only observable prices and requires low interest rates in the long-run, exactly as in economies with overlapping generations. In addition, when quantitative limits to liabilities arise from participation constraints, a feasible welfare im- provement, subject to participation, coincides with the introduced notion of constrained ine±ciency.Download Info
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Paper provided by Department of Economics - University Roma Tre in its series Departmental Working Papers of Economics - University 'Roma Tre' with number 0089.Length: 29
Date of creation: Jan 2008
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Handle: RePEc:rtr:wpaper:0089
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Keywords: Private debt; solvency constraints; default; Cass Criterion; asset;Other versions of this item:
- Bloise, Gaetano & Reichlin, Pietro, 2011. "Asset prices, debt constraints and inefficiency," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1520-1546, July.
- Gaetano Bloise & Pietro Reichlin, 2008. "Asset Prices, Debt Constraints and Inefficiency," EIEF Working Papers Series 0803, Einaudi Institute for Economic and Finance (EIEF), revised Mar 2008.
- Bloise, Gaetano & Reichlin, Pietro, 2008. "Asset Prices, Debt Constraints and Inefficiency," CEPR Discussion Papers 6779, C.E.P.R. Discussion Papers.
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-07 (All new papers)
- NEP-DGE-2008-10-07 (Dynamic General Equilibrium)
- NEP-MAC-2008-10-07 (Macroeconomics)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Robert A. Becker & Tapan Mitra, 2011.
"Efficient Ramsey Equilbria,"
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2011-009, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
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- Bidian, Florin & Bejan, Camelia, 2011. "Martingale properties of self-enforcing debt," MPRA Paper 36609, University Library of Munich, Germany, revised 12 Feb 2012.
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