Mário R. Páscoa

Collateral avoids ponzi schemes in incomplete markets

Without introducing neither debt constraints nor transversality conditions to avoid the possibility of Ponzi schemes, we show existence of equilibrium in an incomplete markets economy with a collateral structure.

Securities market theory: Possession, repo and rehypothecation

By introducing repo markets we understand how agents need to borrow issued securities before shorting them: (re)-hypothecation is at the heart of shorting. Non-negative amounts of securities in the box of an agent (amounts borrowed or owned but not lent on) can be sold, and recursive use of securities as collateral allows agents to leverage their positions. A binding box constraint induces a liquidity premium: the repo rate becomes special and the security price higher than expected discounted cash-flows. Existence of equilibrium is guaranteed under limited re-hypothecation, a situation secured by (current or proposed) institutional arrangements.

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.

Equilibrium with Default and Endogenous Collateral

We study a two-period general equilibrium model with incomplete asset markets and default. We make collateral endogenous by allowing each seller of assets to fix the level of collateral. Sellers are required to provide collateral whose first-period value, per unit of asset, exceeds the asset price by an arbitrarily small amount. Moreover, borrowers are also required to be fully covered by the purchase, in the first period, of state-by-state default insurance. These insurance contracts are offered by lenders. The insurance cost or revenue is a linear charge and plays the role of a spread penalizing borrowers who will incur in default and benefiting lenders who will suffer default. Under these assumptions, equilibrium always exists. Copyright Blackwell Publishers, Inc. 2000.

Approximate equilibrium in pure strategies for non-atomic games

Abstract In this paper we establish the existence of a symmetric approximate equilibrium in pure strategies for an anonymous non-atomic game with acontinuum of strategies. This result is a consequence of the fact that in an abstract game with measure valued profiles [as in Schmeidler (1973, Journal of Statistical Physics 7) and Khan (1986, Transactions of the American Mathematical Society 293)] the degenerate best-response profiles are dense in the set of all best- response. We also present a corollary on assignment games with additively separable payoffs and comment on the difficulties with the purification of equilibrium in general assignment games.

Blocking Efficacy of Small Coalitions in Myopic Economies

Abstract We consider a continuum economy with infinitely many commodities and show that, for any positive e, the core of the economy coincides with the set of allocations which are not blocked by any coalition with measure less than e. Actually, our main result is an extension of Grodals (1972, Econometrica40, 581–583) result and, therefore, Schmeidlers (1972, Econometrica40, 579–580) result to economies whose commodity space is l∞, for myopic preferences. Journal of Economic Literature Classification Numbers: C71, D51.

General equilibrium, wariness and efficient bubbles

Wary consumers overlook gains but not losses in remote sets of dates or states. As preferences are upper but not lower Mackey semi-continuous, Bewley[modifier letter apostrophe]s (1972) [4] result on existence of equilibrium whose prices are not necessarily countably additive holds. Wariness is related to lack of myopia and to ambiguity aversion (and, therefore, to Bewley[modifier letter apostrophe]s (1986) [6] work on Knightian uncertainty). Wary infinite lived agents have weaker transversality conditions allowing them to be creditors at infinity and for bubbles to occur in positive net supply assets completing the markets. There are efficient allocations that can only be implemented with asset bubbles.

Real indeterminacy of equilibria and manipulability

Abstract In this paper, we analyze the indeterminacy of equilibria in financial markets and propose a selection mechanism. We suggest that there is one equilibrium that prevails over the others, as a result of the market power of the agents that some states of nature become monopolists of certain commodities. Given a financial assets model, we define a price game and show the existence of mixed strategies equilibria. Then we purify these equilibria by considering a price game with incomplete information.

Overlapping generations models with incomplete markets

Abstract This paper addresses existence of equilibria for an overlapping generations exchange economy with incomplete markets, one-period real assets and bounded short sales, defined on an infinite event-tree where there is a continuum of branches at each node of the tree. The demographic structure used in the paper is quite general and allows for infinite-lived as well as finite-lived agents.

Monopolistic competition and non-neighboring-goods

SummaryThis paper studies price games played by a continuum of differentiated producers who face demands generated by additively separable preferences exhibiting a non-neighboring goods property. The examples of exact equilibria show that an asymmetric Chamberlian outcome is compatible with nonzero profits for nonmarginal firms and also with constant average costs, contrary to long sustained views. The paper tries also to short out the structure behind this class of examples and identify as general features the presence of nonperfectly elastic demands facing individual firms and the existence of an approximate Chamberlinian equilibrium.