Indeterminacy of Competitive Equilibrium with Risk of Default

Bloise, Gaetano and Reichlin, Pietro and Tirelli, Mario (2009) Indeterminacy of Competitive Equilibrium with Risk of Default. [Working Paper]. p. 20. Departmental Working Papers of Economics (No. 0109).

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Abstract/Index

We prove indeterminacy of competitive equilibrium in sequential economies, where limited commitment requires the endogenous determination of solvency constraints preventing debt repudiation (Alvarez and Jermann [3]). In particular, we show that, for any arbitrary value of social welfare in between autarchy and (constrained) optimality, there exists an equilibrium attaining that value. Our method consists in restoring Welfare Theorems for a weak notion of (constrained) optimality. The latter, inspired by Malinvaud [15], corresponds to the absence of Pareto improving feasible redistributions over nite (though inde nite) horizons.

Item Type: Report / Paper (Working Paper)
Research documents and activity classification: Working Papers > Non-Refereed Working Papers / of national relevance only
Divisions: Department of Business and Management
Uncontrolled Keywords: Limited commitment; solvency constraints; Malinvaud efficiency Welfare Theorems; indeterminacy; Welfare Theorems; indeterminacy; Welfare Theorems indeterminacy; financial fragility; market collapse.
MIUR Scientific Area: Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited by: Maria Teresa Nistico
Date Deposited: 17 Dec 2010 12:02
Last Modified: 21 Apr 2015 23:14
URI: http://eprints.luiss.it/id/eprint/851

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