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On bankruptcy in general equilibrium with uncertainty

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  • Ritzberger, Klaus
  • Tsomocos, Dimitrios P.

Abstract

In a general equilibrium model with time and uncertainty the possibility of bankruptcy cannot be excluded in general, when short sale constraints are too loose. Tight short trading constraints, on the other hand, are inefficient. Bankruptcies turn security payoffs endogenous and destroy convexity of the induced preferences over portfolios. The latter raises existence issues for competitive equilibrium, as illustrated in this paper by an example.

Suggested Citation

  • Ritzberger, Klaus & Tsomocos, Dimitrios P., 2024. "On bankruptcy in general equilibrium with uncertainty," Journal of Economic Theory, Elsevier, vol. 218(C).
    • Handle: RePEc:eee:jetheo:v:218:y:2024:i:c:s0022053124000449
    DOI: 10.1016/j.jet.2024.105838
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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