Martingale properties of self-enforcing debt

Florin Bidian and Camelia Bejan

Economic Theory, 2015, vol. 60, issue 1, 35-57

Abstract: Not-too-tight debt limits are endogenous restrictions on debt that prevent agents from defaulting and opting for a specified continuation utility, while allowing for maximal credit expansion. For an agent facing some fixed prices for the Arrow securities, we prove that discounted not-too-tight debt limits must differ by a martingale. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Endogenous debt limits; Not-too-tight constraints; Limited enforcement; G11; G12; D53; E44 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Martingale properties of self-enforcing debt (2012)
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DOI: 10.1007/s00199-014-0832-0

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