Competitive Equilibria with Production and Limited Commitment
This paper studies a production economy with aggregate uncertainty where consumers have limited commitment on their financial liabilities. Markets are endogenously incomplete due to the fact that the borrowing constraints are determined endogenously. We first show that, if competitive financial intermediaries are allowed to set the borrowing limits, then the ones that prevent default will be an equilibrium outcome. The equilibrium allocations in this economy are not constrained efficient due to the fact that intermediaries do not internalize the adverse effects of capital on default incentives. We also isolate and quantifiy this new source of inefficiency by comparing the competitive equilibrium allocations to the constrained efficient ones both qualitatively and quantitatively. We tend to observe higher capital accumulation in the competitive equilibrium, implying that agents may enjoy higher (average) welfare in the long run than in the constrained efficient allocation.
|Date of creation:||Oct 2010|
|Date of revision:|
|Contact details of provider:|| Postal: Stony Brook, NY 11794-4384|
Web page: http://www.stonybrook.edu/commcms/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eva Carceles-Poveda & Daniele Coen-Pirani, 2009.
"Shareholders' Unanimity With Incomplete Markets,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 577-606, 05.
- Daniele Coen-Pirani & Eva Carceles-Poveda, . "Shareholders Unanimity With Incomplete Markets," GSIA Working Papers 2005-E13, Carnegie Mellon University, Tepper School of Business.
- Daniele Coen-Pirani, 2004. "Shareholders Unanimity With Incomplete Markets," 2004 Meeting Papers 479, Society for Economic Dynamics.
When requesting a correction, please mention this item's handle: RePEc:nys:sunysb:10-04. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.