Asset Prices, Debt Constraints and Inefficiency

Bloise, Gaetano and Reichlin, Pietro (2008) Asset Prices, Debt Constraints and Inefficiency. [Working Paper]. p. 26. Departmental Working Papers of Economics (No. 0089).

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In this paper, we consider economies with (possibly endogenous) solvency constraints under uncertainty. Constrained ine±ciency corresponds to a feasible redistribution yielding a welfare improvement beginning from every contingency reached by the economy. A sort of Cass Criterion (Cass [10]) completely characterizes constrained inefficiency. This criterion involves only observable prices and requires low interest rates in the long-run, exactly as in economies with overlapping generations. In addition, when quantitative limits to liabilities arise from participation constraints, a feasible welfare improvement, subject to participation, coincides with the introduced notion of constrained inefficiency.

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: Private debt; solvency constraints; default; Cass Criterion; asset.
MIUR Scientific Area: Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited by: Maria Teresa Nisticò
Date Deposited: 17 Dec 2010 13:45
Last Modified: 21 Apr 2015 23:14

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