Regularity and Pareto Improving on financial equilibria with endogenous borrowing restrictions

We consider a pure exchange, general equilibrium model, with two periods and a finite number of states, commodities, numeraire assets, and households. Participation in the asset markets is restricted in a household specific manner, imposing upper bounds on the amounts of borrowing which can be obtained using assets. Those bounds are assumed to be endogenous, i.e., they depend on asset and commodity prices. After establishing existence of equilibria, we show that, generically in the set of the economies, equilibria are finite, regular and suboptimal. Then, we restrict our attention to the significant set of economies in which some associated equilibria exhibit a sufficiently high number of strictly binding participation constraints. We prove that, generically in that set, those equilibria are Pareto improvable through a local change of the participation constraints.