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Latin american journal of economics

versión On-line ISSN 0719-0433

Lat. Am. J. Econ. vol.48 no.1 Santiago mayo 2011

http://dx.doi.org/10.4067/S0719-04332011000100002 

Vol. 48, No. 1 (May, 2011), 39-64
LATIN AMERICAN JOURNAL OF ECONOMICS

 

ON THE PROPERTIES OF GENERAL EQUILIBRIUM WITH DEFAULT IN ECONOMIES WITH INCOMPLETE MARKETS*

 

Eduardo A. Rodriguez**

** Universidad de Buenos Aires. E-mail address: edalro@hotmail.com.


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.

JEL clasification: D52, D53

Keywords: General equilibrium, incomplete markets, default


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