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Unpublished Paper
On the occurrence of Ponzi schemes in presence of credit restrictions penalizing default.
(2010)
  • Abdelkrim Seghir
Abstract

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.

Disciplines
Publication Date
2010
Citation Information
Abdelkrim Seghir. "On the occurrence of Ponzi schemes in presence of credit restrictions penalizing default." (2010)
Available at: http://works.bepress.com/karim_seghir/6/