Finance and Economics Discussion Series (FEDS)
October 2000
Bankruptcy in General Equilibrium
Tarun Sabarwal
Abstract:
In this paper, I construct a model of an exchange economy in which bankruptcy arises in a manner similar to what we observe. This model is a more realistic representation of some markets in which intertemporal assets are traded. Using standard and natural assumptions, I show that every economy represented by this model has an equilibrium. Using examples, I highlight some welfare effects of bankruptcy.
Keywords: Bankruptcy, general equilibrium, incomplete markets, exemption, credit limit
PDF: Full Paper
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