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Endogenous Default Penalties in Nominal Incomplete Markets

  • Nuno Gouveia

    (CERMSEM, Cermsem Cnrs-Umr 8095, Universit¡äe Paris 1)

  • Abdelkrim Seghir

    (American University in Cairo, Department of Economics)

Registered author(s):

    This paper endogeneizes the utility penalties, initiated by Dubey, Geanakoplos and Shubik (2005), by introducing a benevolent central planner choosing the value of marginal default utility penalties for each consumer. We also prove equilibrium existence with endogenous default penalties for incomplete markets with nominal assets.

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    Article provided by Society for AEF in its journal Annals of Economics and Finance.

    Volume (Year): 10 (2009)
    Issue (Month): 2 (November)
    Pages: 391-418

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    Handle: RePEc:cuf:journl:y:2009:v:10:i:2:p:391-418
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    1. William R. Zame, 1992. "Efficiency and the Role of Default When Security Markets are Incomplete," UCLA Economics Working Papers 673, UCLA Department of Economics.
    2. 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.
    3. Pradeep Dubey & John Geanakoplos & Martin Shubik, 2005. "Default and Punishment in General Equilibrium," Econometrica, Econometric Society, vol. 73(1), pages 1-37, 01.
    4. Gale, D. & Mas-Colell, A., 1975. "An equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(1), pages 9-15, March.
    5. Geanakoplos, John, 1990. "An introduction to general equilibrium with incomplete asset markets," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 1-38.
    6. Páscoa, Mário Rui & Seghir, Abdelkrim, 2009. "Harsh default penalties lead to Ponzi schemes," Games and Economic Behavior, Elsevier, vol. 65(1), pages 270-286, January.
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