Economics at your fingertips  

Pecuniary Externalities in Competitive Economies with Limited Pledgeability

V. Filipe Martins-Da-Rocha (), Toan Phan () and Yiannis Vailakis ()
Additional contact information
V. Filipe Martins-Da-Rocha: LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique, EESP - Sao Paulo School of Economics - FGV - Fundacao Getulio Vargas [Rio de Janeiro]
Toan Phan: Federal Reserve Bank of Richmond
Yiannis Vailakis: Adam Smith Business School - University of Glasgow

Working Papers from HAL

Abstract: We analyze the efficiency properties of competitive economies with strategic default and limited pledgeability. We show that laissez-faire equilibria can be constrained suboptimal. Under certain conditions, imposing tighter borrowing constraints (relative to the laissez-faire regime) can make everybody in the economy better off. The inefficiency is due to the interaction between debt pricing and the default option, which generates a pecuniary externality. We also show that a Pigouvian subsidy on net financial positions may induce borrowers to internalize this externality and increase welfare.

Keywords: Limited pledgeability; Debt constraints; Constrained inefficiency; Macroprudential interventions. (search for similar items in EconPapers)
Date: 2022-12-21
New Economics Papers: this item is included in nep-dge and nep-fdg
Note: View the original document on HAL open archive server:
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

Page updated 2023-05-27
Handle: RePEc:hal:wpaper:hal-03909596