An Axiomatization of the Proportional Rule in Financial Networks

Péter Csóka and P. Jean-Jacques Herings

No 1, Research Memorandum from Maastricht University, Graduate School of Business and Economics (GSBE)

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.

JEL-codes: C71 G10 (search for similar items in EconPapers)
Date: 2017-01-01
New Economics Papers: this item is included in nep-gth and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: An Axiomatization of the Proportional Rule in Financial Networks (2021)
Working Paper: An Axiomatization of the Proportional Rule in Financial Networks (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:unm:umagsb:2017001

DOI: 10.26481/umagsb.2017001

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