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On the Properties of General Equilibrium with Default in Economies with Incomplete Markets

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  • Eduardo A. Rodríguez

Abstract

In this paper we study the properties of general equilibrium with default in economies with incomplete markets. It is noted that, in equilibrium, an agent makes two types of comparisons when deciding whether to participate in the credit market: as a lender and as a borrower. As a consequence, the equilibrium can be linked to levels of punishment, perception of default and promised returns. An analysis of equilibrium in the case of economies with two homogeneous types of agents is also presented, from which it can be deduced that in equilibrium under partial default the personal valuations of default for the buyer and the seller are equal.

Suggested Citation

  • Eduardo A. Rodríguez, 2011. "On the Properties of General Equilibrium with Default in Economies with Incomplete Markets," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 48(1), pages 39-64.
  • Handle: RePEc:ioe:cuadec:v:48:y:2011:i:1:p:39-64
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    Keywords

    General equilibrium; incomplete markets; default;

    JEL classification:

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

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