Collateral equilibrium, I: a basic framework

John Geanakoplos and William Zame

Economic Theory, 2014, vol. 56, issue 3, 443-492

Abstract: Much of the lending in modern economies is secured by some form of collateral: residential and commercial mortgages and corporate bonds are familiar examples. This paper builds an extension of general equilibrium theory that incorporates durable goods, collateralized securities, and the possibility of default to argue that the reliance on collateral to secure loans and the particular collateral requirements chosen by the social planner or by the market have a profound impact on prices, allocations, market structure, and the efficiency of market outcomes. These findings provide insights into housing and mortgage markets, including the subprime mortgage market. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Collateral; Default; GEI; D5 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (74)

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Related works:
Working Paper: Collateral Equilibrium: A Basic Framework (2013)
Working Paper: Collateral Equilibrium: A Basic Framework (2013)
Working Paper: Collateral Equilibrium - A Basic Framework (2013)
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DOI: 10.1007/s00199-013-0797-4

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