Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/190462
Authors: 
Csóka, Péter
Herings, P. Jean-Jacques
Year of Publication: 
2016
Series/Report no.: 
IEHAS Discussion Papers MT-DP - 2017/1
Abstract: 
The most important rule to determine payments in real-life bankruptcy problems is the proportional rule. Many bankruptcy problems are characterized by network aspects and default may occur as a result of contagion. Indeed, in financial networks with defaulting agents, the values of the agents' assets are endogenous as they depend on the extent to which claims on other agents can be collected. These network aspects make an axiomatic analysis challenging. This paper is the first to provide an axiomatization of the proportional rule in financial networks. Our two central axioms are impartiality and non-manipulability by identical agents. The other axioms are claims boundedness, limited liability, priority of creditors, and continuity.
Subjects: 
financial networks
systemic risk
bankruptcy rules
proportional rule
JEL: 
C71
G10
ISBN: 
978-615-5594-80-9
Document Type: 
Working Paper
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