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Regularity and Pareto Improving on financial equilibria with endogenous borrowing restrictions

Author

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  • Michele Gori

    (Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze)

  • Marina Pireddu

    (Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze)

  • Antonio Villanacci

    (Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze)

Abstract

We consider a pure exchange, general equilibrium model, with two periods and a finite number of states, commodities, numeraire assets, and households. Participation in the asset markets is restricted in a household specific manner, imposing upper bounds on the amounts of borrowing which can be obtained using assets. Those bounds are assumed to be endogenous, i.e., they depend on asset and commodity prices. After establishing existence of equilibria, we show that, generically in the set of the economies, equilibria are finite, regular and suboptimal. Then, we restrict our attention to the significant set of economies in which some associated equilibria exhibit a sufficiently high number of strictly binding participation constraints. We prove that, generically in that set, those equilibria are Pareto improvable through a local change of the participation constraints.

Suggested Citation

  • Michele Gori & Marina Pireddu & Antonio Villanacci, 2010. "Regularity and Pareto Improving on financial equilibria with endogenous borrowing restrictions," Working Papers - Mathematical Economics 2010-08, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa, revised Aug 2012.
  • Handle: RePEc:flo:wpaper:2010-08
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    References listed on IDEAS

    as
    1. Laura Angeloni & Bernard Cornet, 2005. "Existence Of Financial Equilibria In A Multiperiod Stochastic Economy," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200506, University of Kansas, Department of Economics, revised Feb 2005.
    2. Aouani, Zaier & Cornet, Bernard, 2009. "Existence of financial equilibria with restricted participation," Journal of Mathematical Economics, Elsevier, vol. 45(12), pages 772-786, December.
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    5. Michele Gori & Marina Pireddu & Antonio Villanacci, 2014. "Existence of financial equilibria with endogenous short selling restrictions and real assets," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(2), pages 349-371, October.
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    More about this item

    Keywords

    General equilibrium; restricted participation; financial markets; suboptimality; Pareto improving.;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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