Abdelkrim Seghir

Harsh default penalties lead to Ponzi schemes

In the presence of utility penalties, collateral requirements do not always eliminate the occurrence of Ponzi schemes. Harsh utility penalties may induce effective payments over collateral recollection values. In this event, loans can be larger than collateral costs and Ponzi schemes become possible.

Overlapping Generations Model with Incomplete Markets: The Numeraire Case II

This paper deals with the existence of equilibrium in a non-classical Overlapping Generations Model with incomplete markets and one-period numeraire assets. The stochastic structure of the model is given by an infinite event-tree in which each node has a finite number of immediate successors. The peculiarity of this Overlapping Generations Model consists of the eventual presence of infinitely lived agents. To rule out Ponzi schemes, we impose debt constraints, due to Levine-Zame [1996], to the infinitely lived agents.

Collateral Versus Default History

This paper deals with equilibrium existence for incomplete markets economies with finitely-lived agents and infinitely-lived agents when default is allowed and borrowers have to constitute collateral in terms of durable goods. In the first model, lenders are protected by an exogenous personalized collateral. In the second model, the personalized collateral requirements are endogenously determined by a financial institution whose objective is to minimize the default rate taking into account agent’s default history.