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Harsh default penalties lead to Ponzi schemes

Mario Pascoa and Abdelkrim Seghir ()

Games and Economic Behavior, 2009, vol. 65, issue 1, 270-286

Abstract: In the presence of utility penalties, collateral requirements do not always eliminate the occurrence of Ponzi schemes. Harsh utility penalties may induce effective payments over collateral recollection values. In this event, loans can be larger than collateral costs and Ponzi schemes become possible.

Keywords: Equilibrium; Incomplete; markets; Default; Collateral; Utility; penalties; Ponzi; schemes (search for similar items in EconPapers)
Date: 2009
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