Harsh default penalties lead to Ponzi schemes: A counterexample

Victor Filipe Martins da Rocha () and Yiannis Vailakis ()
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Victor Filipe Martins da Rocha: CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Yiannis Vailakis: University of Exeter Business School - University of Exeter
Authors registered in the RePEc Author Service: V. Filipe Martins-da-Rocha

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Abstract: Páscoa and Seghir (2009) presented two examples to show that in the presence of utility penalties for default, collateral requirements do not always eliminate the occurrence of Ponzi schemes and equilibria may fail to exist. This paper aims at providing a counterexample to their claim. We show that in the examples they consider, a competitive equilibrium with no trade can be supported due to unduly pessimistic expectations on asset deliveries.

Date: 2012
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Published in Games and Economic Behavior, 2012, 75 (1), http://www.sciencedirect.com/science/article/pii/S0899825611001783. ⟨10.1016/j.geb.2011.10.004⟩

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Journal Article: Harsh default penalties lead to Ponzi schemes: A counterexample (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00664552

DOI: 10.1016/j.geb.2011.10.004

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