Efficiency and the Role of Default When Security Markets Are Incomplete

William Zame

American Economic Review, 1993, vol. 83, issue 5, 1142-64

Abstract: This paper argues that default plays an important positive role in the economy. If markets are incomplete and traders are only able to enter into contracts that they will be able to execute regardless of future events, contingent contracting may be severely restricted. Moreover, opening new markets may not relieve these restrictions. Default promotes efficiency in a way that opening new markets does not by making it possible for traders to enter into contracts that they will be able to execute with high probability but not with certainty. Copyright 1993 by American Economic Association.

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (150)

Downloads: (external link)
http://links.jstor.org/sici?sici=0002-8282%2819931 ... O%3B2-G&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Working Paper: Efficiency and the Role of Default When Security Markets are Incomplete (1992)
Working Paper: Efficiency and the Role of Default When Security Markets are Incomplete (1990)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:83:y:1993:i:5:p:1142-64

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().