Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/204914
Authors: 
Monnet, Cyril
Quintin, Erwan
Year of Publication: 
2018
Series/Report no.: 
Discussion Papers 18-14
Abstract: 
In a canonical model of borrowing and lending, an exclusion technology that features full exclusion for a deterministic number of periods following default maximizes stationary equilibrium welfare. This exclusion policy maximizes the stationary volume of mutually beneficial lending transactions. It also maximizes the average welfare of the excluded. The optimal length of exclusion depends on fundamentals such as borrower patience and the direct cost of default. It also depends on incentives to default for strategic rather than exogenous reasons.
Subjects: 
endogenous default
exclusion
JEL: 
D52
D82
Document Type: 
Working Paper

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