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T-Space at The University of Toronto Libraries >
Theoretical Economics >
Volume 1, Number 4 (December 2006) >

Please use this identifier to cite or link to this item: http://hdl.handle.net/1807/9513

Title: Endogenous incomplete markets, enforcement constraints, and intermediation
Authors: Arpad Abraham; University of Rochester
Eva Carceles-Poveda; SUNY Stony Brook
Keywords: 
Complete markets, enforcement constraints, intermediation
E44, D52, G12
Issue Date: 6-Dec-2006
Publisher: Theoretical Economics
Citation: Theoretical Economics; Vol 1, No 4 (2006); 439-459
Abstract: [This item is a preserved copy. To view the original, visit http://econtheory.org/] Alvarez and Jermann (2000) show that the constrained efficient allocations of endowment economies with imperfect risk sharing due to limited commitment can be decentralized as competitive equilibria with endogenous debt constraints that are not too tight. These are the loosest possible borrowing limits that do not allow for default in equilibrium. However, such a decentralization is not possible in the presence of capital accumulation, since changes in the aggregate capital also affect the incentives to default. In a model with endogenous production, aggregate risk, and competitive intermediaries, we show that a decentralization with endogenous debt constraints is possible if one also imposes an upper limit on the intermediaries. capital holdings.
URI: http://hdl.handle.net/1807/9513
Other Identifiers: http://econtheory.org/ojs/index.php/te/article/view/20060439
Rights: Authors who publish in <i>Theoretical Economics</i> will release their articles under the <a href="http://creativecommons.org/licenses/by-nc/2.5/">Creative Commons Attribution-NonCommercial license</a>. This license allows anyone to copy and distribute the article for non-commercial purposes provided that appropriate attribution is given.
Appears in Collections:Volume 1, Number 4 (December 2006)

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