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dc.contributor.authorGale, Douglasen
dc.contributor.authorGottardi, Pieroen
dc.date.accessioned2010-01-27-
dc.date.accessioned2010-05-14T08:22:01Z-
dc.date.available2010-05-14T08:22:01Z-
dc.date.issued2009-
dc.identifier.urihttp://hdl.handle.net/10419/30550-
dc.description.abstractWe study a competitive model in which market incompleteness implies that debt-financed firms may default in some states of nature and default may lead to the sale of the firms’ assets at fire sale prices when markets are illiquid. This incompleteness is the only friction in the model and the only cost of default. The anticipation of such losses alone may distort firms’ investment decisions. We characterize the conditions under which fire sales occur in equilibrium and their consequences on firms’ investment decisions. We also show that endogenous financial crises may arise in this environment, with asset prices collapsing as a result of pure self-fulfilling beliefs. Finally, we examine alternative interventions to restore the efficiency of equilibria.en
dc.language.isoengen
dc.publisher|aCenter for Economic Studies and ifo Institute (CESifo) |cMunichen
dc.relation.ispartofseries|aCESifo Working Paper |x2900en
dc.subject.jelD50en
dc.subject.jelD80en
dc.subject.jelG10en
dc.subject.jelG33en
dc.subject.ddc330en
dc.subject.keywordilliquid marketsen
dc.subject.keyworddefaulten
dc.subject.keywordincomplete marketsen
dc.subject.keywordprice distortionsen
dc.subject.keywordinefficient investmenten
dc.titleIlliquidity and under-valuation of firms-
dc.typeWorking Paperen
dc.identifier.ppn617271429en
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen

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