General Equilibrium with Endogenous Uncertainty and Default

Endogenous Default Penalties in Nominal Incomplete Markets

Classical models of General Equilibrium Theory, both with complete markets and incomplete markets, assume that all borrowers fully keep their promises. This assumption was heavily criticized as it does not reflect actual financial markets practices. In the Nineties, general equilibrium models have allowed for default. More precisely, borrowers may actually default on future asset returns. When ...

Default and Punishment in General Equilibrium

We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of adverse selection and signalling phenomena (including the Akerlof lemons model and the Rothschil...

DEFAULT AND PUNISHMENT IN GENERAL EQUILIBRIUM By

We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment. The equilibrating variables include expected delivery rates, along with the usual prices of assets and commodities. By reinterpreting the variables, our model encompasses a broad range of adverse selection, and signalling phenomena (including the Akerlof lemons model and Rothschild—S...

LIQUIDITY, DEFAULT AND CRASHES: ENDOGENOUS CONTRACTS IN GENERAL EQUILIBRIUM By

ENDOGENOUS LEVERAGE IN A BINOMIAL ECONOMY: THE IRRELEVANCE OF ACTUAL DEFAULT By

We show that binomial economies with financial assets are an informative and tractable model to study endogenous leverage and collateral equilibrium: endogenous leverage can be highly volatile, but it is always easy to compute. The possibility of default can have a dramatic effect on equilibrium, if collateral is scarce, yet we prove the No-Default Theorem asserting that, without loss of genera...