Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/176028 
Year of Publication: 
2008
Series/Report no.: 
Texto para discussão No. 545
Publisher: 
Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia, Rio de Janeiro
Abstract: 
In infinite horizon incomplete market economies, Ponzi schemes are avoided and equilibrium exists when collateral repossession is the only mechanism enforcing borrowers not to entirely default on their promises. In these economies, we add default enforcement mechanisms that are effective, i.e. induce payments besides the value of collateral guarantees. We prove that, independently of prices, the individual’s problem does not have a physically feasible solution when collateral guarantees are not large enough relative to the effectiveness of the additional enforcement mechanisms. We also show that this result does not depend on specific types of such mechanisms, as long as they are effective.
Subjects: 
Effective default enforcements
Collateral repossession
Individual’s optimality.
JEL: 
D50
D52
Document Type: 
Working Paper

Files in This Item:
File
Size
359.11 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.