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The mathematics of Ponzi schemes

  • Artzrouni, Marc

A first order linear differential equation is used to describe the dynamics of an investment fund that promises more than it can deliver, also known as a Ponzi scheme. The model is based on a promised, unrealistic interest rate; on the actual, realized nominal interest rate; on the rate at which new deposits are accumulated and on the withdrawal rate. Conditions on these parameters are given for the fund to be solvent or to collapse. The model is fitted to data available on Charles Ponzi's 1920 eponymous scheme and illustrated with a philanthropic version of the scheme.

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Article provided by Elsevier in its journal Mathematical Social Sciences.

Volume (Year): 58 (2009)
Issue (Month): 2 (September)
Pages: 190-201

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Handle: RePEc:eee:matsoc:v:58:y:2009:i:2:p:190-201
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505565

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  1. Blanchard Olivier & Weil Philippe, 2001. "Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games under Uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(2), pages 1-23, November.
  2. Forslid, Rikard, 1998. "External Debt and Ponzi-Games in a Small Open Economy with Endogenous Growth," Journal of Macroeconomics, Elsevier, vol. 20(2), pages 341-349, April.
  3. O'Connell, Stephen A & Zeldes, Stephen P, 1988. "Rational Ponzi Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 431-50, August.
  4. Bhattacharya, Utpal, 2003. "The optimal design of Ponzi schemes in finite economies," Journal of Financial Intermediation, Elsevier, vol. 12(1), pages 2-24, January.
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