Harsh default penalties lead to Ponzi schemes: a counterexample

Vailakis, Yiannis; Martins-da-Rocha, V. Filipe

Harsh default penalties lead to Ponzi schemes: a counterexample

https://hdl.handle.net/10036/4297
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posted on 2025-07-30, 14:07 authored by Yiannis Vailakis, V. Filipe Martins-da-Rocha

Pascoa and Seghir (2009) presented two examples to show that in the presence of utility penalties for default, collateral requirements do not always eliminate the occurrence of Ponzi schemes and equilibria may fail to exist. We provide a counterexample to their claim by showing that no trade is a competitive equilibrium in the examples they consider.

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ISSN - Is published in https://portal.issn.org/resource/ISSN/0899-8256

Notes

Preprint dated October 12, 2011. Final version published by Elsevier; available online at http://www.sciencedirect.com/

External DOI

https://doi.org/10.1016/j.geb.2011.10.004

Journal

Games and Economic Behaviour

Publisher

Elsevier

Language

en

Citation

Volume 75 (1), pp. 277–282

Department

Economics

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Keywords

Infinite horizon economies Default penalties Collateral Ponzi schemes Pessimistic expectations No-trade

Harsh default penalties lead to Ponzi schemes: a counterexample

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