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Dynamic Competitive Economies with Complete Markets and Collateral Constraints

Gottardi, Piero and Kubler, Felix (2015) 'Dynamic Competitive Economies with Complete Markets and Collateral Constraints.' The Review of Economic Studies, 82 (3). 1119 - 1153. ISSN 0034-6527

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Abstract

In this article we examine the competitive equilibria of a dynamic stochastic economy with complete markets and collateral constraints. We show that, provided the sets of asset pay-offs and of collateral levels are sufficiently rich, the equilibrium allocations with sequential trades and collateral constraints are equivalent to those obtained in Arrow–Debreu markets subject to a series of limited pledgeability constraints. We provide both necessary and sufficient conditions for equilibria to be Pareto efficient and show that when collateral is scarce equilibria are not only Pareto inefficient but also often constrained inefficient, in the sense that imposing tighter borrowing restrictions can make everybody in the economy better off. We derive sufficient conditions for the existence of Markov equilibria and, for the case of two agents, for the existence of equilibria that have finite support. These equilibria can be computed with arbitrary accuracy and the model is very tractable.

Item Type: Article
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Elements
Date Deposited: 18 Sep 2019 12:16
Last Modified: 18 Sep 2019 12:16
URI: http://repository.essex.ac.uk/id/eprint/25370

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