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On the Properties of General Equilibrium with Default in Economies with Incomplete Markets

Eduardo A. Rodríguez

Latin American Journal of Economics-formerly Cuadernos de Economía, 2011, vol. 48, issue 1, 39-64

Abstract: In this paper we study the properties of general equilibrium with default in economies with incomplete markets. It is noted that, in equilibrium, an agent makes two types of comparisons when deciding whether to participate in the credit market: as a lender and as a borrower. As a consequence, the equilibrium can be linked to levels of punishment, perception of default and promised returns. An analysis of equilibrium in the case of economies with two homogeneous types of agents is also presented, from which it can be deduced that in equilibrium under partial default the personal valuations of default for the buyer and the seller are equal.

Keywords: General equilibrium; incomplete markets; default (search for similar items in EconPapers)
JEL-codes: D52 D53 (search for similar items in EconPapers)
Date: 2011
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Latin American Journal of Economics-formerly Cuadernos de Economía is currently edited by Raimundo Soto

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Handle: RePEc:ioe:cuadec:v:48:y:2011:i:1:p:39-64