This paper considers an infinite-horizon exchange economy with incomplete markets of real assets and default. Borrowers are required to constitute collateral in terms of durable goods and face credit restriction functions that depend on their past default. I show that Ponzi schemes are possible when these functions (i) are decreasing, and (ii) allow agents to simultaneously decrease their default level and increase their short--sales by a higher rate. Moreover, I prove that Ponzi schemes are ruled out for linear credit restriction functions provided that the slope of these functions is not too high.
Available at: http://works.bepress.com/karim_seghir/6/