Harsh default penalties lead to Ponzi schemes: a counterexample
Vailakis, Yiannis; Martins-da-Rocha, V. Filipe
Date: 28 October 2011
Journal
Games and Economic Behaviour
Publisher
Elsevier
Publisher DOI
Abstract
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 ...
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.
Economics
Faculty of Environment, Science and Economy
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