Incomplete Financial Markets With Real Assets and Endogenous Credit Limits
In this paper we analyze the effects of restricted participation in a two-period gen- eral equilibrium model with uncertainty in the second period and real assets. Similar to certain arrangements in the market for bank loans, household borrowing is restricted by a household-specific wealth dependent upper bound on credit lines in all states of uncertainty in the second period. We first establish that, generically in the set of the economies, equilibria exist and are finite and regular. We then show that equilibria are generically suboptimal. Finally, we provide a robust example demonstrating that the equilibrium allocations can be Pareto improved through a tightening of the participation constraints.
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- Abdelkrim Seghir & Juan Pablo Torres-Martínez, 2010.
"On equilibrium existence with endogenous restricted financial participation,"
wp316, University of Chile, Department of Economics.
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"Existence of financial equilibria with endogenous short selling restrictions and real assets,"
Working Papers - Mathematical Economics
2010-07, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa, revised Aug 2012.
- 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, vol. 37(2), pages 349-371, October.
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