We prove indeterminacy of competitive equilibrium in sequential economies, where limited commitment requires the endogenous determination of solvency constraints preventing debt repudiation (Alvarez and Jermann [3]). In particular, we show that, for any arbitrary value of social welfare in between autarchy and (constrained) optimality, there exists an equilibrium attaining that value. Our method consists in restoring Welfare Theorems for a weak notion of (constrained) optimality. The latter, inspired by Malinvaud [15], corresponds to the absence of Pareto improving feasible redistributions over nite (though indenite) horizons.
Bloise, G., Reichlin, P., Tirelli, M. (2009). INDETERMINACY OF COMPETITIVE EQUILIBRIUM WITH RISK OF DEFAULT. In WORKING PAPERS (DIPARTIMENTO DI ECONOMIA DELL'UNIVERSITÀ DI ROMA TRE).
INDETERMINACY OF COMPETITIVE EQUILIBRIUM WITH RISK OF DEFAULT
BLOISE, Gaetano;TIRELLI, Mario
2009-01-01
Abstract
We prove indeterminacy of competitive equilibrium in sequential economies, where limited commitment requires the endogenous determination of solvency constraints preventing debt repudiation (Alvarez and Jermann [3]). In particular, we show that, for any arbitrary value of social welfare in between autarchy and (constrained) optimality, there exists an equilibrium attaining that value. Our method consists in restoring Welfare Theorems for a weak notion of (constrained) optimality. The latter, inspired by Malinvaud [15], corresponds to the absence of Pareto improving feasible redistributions over nite (though indenite) horizons.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
