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

---

Texto completo disponible solamente en formato PDF

 

REFERENCES

Araujo A., M.R. Páscoa, and J.P. Torres-Martínez (2002), "Collateral avoids ponzi schemes in incomplete markets," Econometrica 70(4): 1613-38.         [ Links ]

Dubey, P., J. Geanakoplos, and M. Shubik (1989), "Default and efficiency in a general equilibrium model with incomplete markets," Cowles Foundation, Discussion Paper 879R.         [ Links ]

-. (2000), "General equilibrium model with incomplete markets," Cowles Foundation, Discussion Paper 1247.         [ Links ]

-. (2005), "Default and punishment in general equilibrium," Econometrica 73(1): 1-38.         [ Links ]

Hart, O.D. (1975), "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory 11: 418-43.         [ Links ]

Maldonado, W. and J. Orillo (2003), "Persistent default in OLG model with incomplete markets," XXVI Encontro Brasileiro de Econometria. Sociedade Brasileira de Econometria.         [ Links ]

-. (2005), "Collateral or utility penalties?"Universidade Catolica de Brasilia, mimeo.         [ Links ]

Mas-Collel, A., M.D. Whinston, and J.R. Green (1995), Microeconomic theory. Oxford University Press.         [ Links ]

Orillo, J. (2001a), "Default and exogenous collateral in incomplete markets with a continuum of states," Journal of Mathematical Economics 35: 151-65.         [ Links ]

-. (2001b), "Making promises in infinite-horizon economies with default." Universidade Católica de Brasilia. Working Paper.         [ Links ]

Páscoa, M.R. and A. Seghir (2003), "Default penalties and Ponzi schemes in incomplete markets." XXV Encontro Brasileiro de Econometria. Porto Seguro, Bahia. Sociedade Brasileira de Econometria.         [ Links ]

-. (2009), 'Harsh default penalties lead to Ponzi schemes," Games and Economic Behavior 65(1): 270-86. Special Issue in Honor of Martin Shubik.         [ Links ]

Zame, W. R. (1993), "Efficiency and the role of default when security markets are incomplete," The American Economic Review 83(5): 1142-64.         [ Links ]

Zame, W.R. and J. Geanakoplos (2000), "Collateral, default and market crashes." Yale University, mimeo.         [ Links ]