Abstract
We develop a general equilibrium model of wealth transfers in the presence of uncertain lifetimes and default. Without introducing exogenous debt constraints, agents are allowed to make collateral-backed promises at any state of their life span.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Aliprantis C.D. and Border K.C. (1999). Infinite Dimensional Analysis: A Hitchhiker’S Guide, 2nd edn. Springer, Heidelberg
Araujo A.P., Páscoa M.R. and Torres-Martínez J.P. (2002). Collateral avoids Ponzi schemes in incomplete markets. Econometrica 70: 1613–1638
Araujo, A.P., Páscoa, M.R., Torres-Martínez, J.P.: Bubbles, collateral and monetary equilibrium. PUC-Rio Working Papers (2005)
Cardia E. and Michel P. (2004). Altruism, intergenerational transfers of time and bequests. J Econ Dynam Control 28: 1681–1701
Daher, W., Martins da Rocha, V.F., Páscoa, M., Vailakis, Y.: Sequential trading without perfect foresight: the role of default and collateral. Working Paper FEUNL, Portugal (2006)
d’Albis H. (2007). Demographic structure and capital accumulation. J Econ Theory 132: 411–434
Dubey P., Geanakoplos J. and Shubik M. (2005). Default and punishment in general equilibrium. Econometrica 73: 1–37
Dubey, P., Geanakoplos, J., Zame, W.R.: Default, collateral and derivatives. Yale University Working Paper (1995)
Dynan K.E., Skinner J. and Zeldes S.P. (2002). The importance of bequest and life-cycle saving in capital accumulation: a new answer. Amer Econ Rev 92: 274–278
Florenzano M., Gourdel P. and Pascoa M.R. (2001). Overlapping generations model with incomplete markets. J Math Econ 36: 201–217
Fuster L. (1999). Effects of uncertain lifetime and annuity insurance on capital accumulation and growth. Econ Theory 13: 429–445
Fuster L. (2000). Capital accumulation in an Economy with dynasties and uncertain Lifetimes. Rev Econ Dynam 4: 650–674
Geanakoplos, J., Zame, W.R.: Collateral and the enforcement of intertemporal contracts. Yale University Working Paper (2002)
Geanakoplos, J., Polemarchakis, H.M.: Overlapping Generations. Handbook of Mathematical Economics, vol. IV, 1899-1960. Amsterdam: Elsevier (1991)
Hernandez A. and Santos M. (1996). Competitive equilibria for infinite-horizon economies with incomplete markets. J Econ Theory 71: 102–130
Kotlikoff L.J. and Summers L.H. (1981). The role of intergenerational transfers in aggregate capital accumulation. J Polit Econ 89: 706–732
Kubler F. and Schmedders K. (2003). Stationary equilibria in asset-pricing models with incomplete markets and collateral. Econometrica 71: 1767–1793
Leung S.F. (1994). Uncertain lifetime, the theory of the consumer and the life cycle hypothesis. Econometrica 62: 1233–1239
Magill M. and Quinzii M. (1994). Infinite horizon incomplete markets. Econometrica 62: 853–880
Páscoa, M.R., Seghir, A.: Harsh default penalties lead to Ponzi schemes. Working Paper No. 1, IFE, American University of Beirut (2006). Forthcoming in Games and Economic Behavior
Schmachtenberg, R.: Stochastic overlapping generations model with incomplete markets 1: Existence of Equilibria. Discussion Paper No. 363-88, Department of Economics, University of Mannheim (1988)
Seghir A. (2006). An overlapping generations model with non–ordered preferences and numeraire incomplete markets. Decis Econ Financ 28: 95–112
Author information
Authors and Affiliations
Corresponding author
Additional information
We are indebted to Juliano Assunção, Andrés Carvajal, Aditya Goenka, Atsushi Kajii, Filipe Martins-da-Rocha and Mário Páscoa for helpful comments and suggestions. We are also grateful to an anonymous referee for valuable suggestions on earlier versions of the paper. A. Seghir acknowledges supports from INOVA and from PUC-Rio, where this work was partly undertaken. He is also grateful to the Institute of Financial Economics at the American University of Beirut for financial support. J.P. Torres-Martínez acknowledges financial support from CNPq, through project 307554/2004-0, and thanks the hospitality of Faculdade de Economia at Universidade Nova de Lisboa, where this research was started.
Rights and permissions
About this article
Cite this article
Seghir, A., Torres-Martínez, J.P. Wealth transfers and the role of collateral when lifetimes are uncertain. Econ Theory 36, 471–502 (2008). https://doi.org/10.1007/s00199-007-0282-z
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00199-007-0282-z