The possibility of default limits available liquidity. If the potential default draws nearer, a liquidity crisis may … ensue, causing a crash in asset prices, even if the probability of default barely changes, and even if no defaults … subsequently materialize. Introducing default and limited collateral into general equilibrium theory (GE) allows for a theory of …

Introducing default and limited collateral into general equilibrium theory (GE) allows for a theory of endogenous … asset may default, its drop in price may be much greater than its objective drop in value because the drop in value reduces … information also shortens the horizon over which the asset might default, its price falls still further because the margin …

Our paper provides a complete characterization of leverage and default in binomial economies with financial assets … serving as collateral. Our Binomial No-Default Theorem states that any equilibrium is equivalent (in real allocations and … prices) to another equilibrium in which there is no default. Thus actual default is irrelevant, though the potential for …

We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment. The … for asset trade. We show that more lenient punishment which encourages default may be Pareto improving because it allows … for better risk spreading. We also show that default opens the door to a theory of endogenous assets. …

In our previous paper we built a general equilibrium model of default and punishment in which equilibrium always exists … sales constraints as equilibrium signals. By specializing the default penalties and imposing an exclusivity constraint on …

We extend the standard model of general equilibrium with incomplete markets to allow for default and punishment by … compute how the size of their loan or the price they quote might affect default rates. It also makes for a simple equilibrium … equilibrium always exists in our model, and that default, in conjunction with refinement, opens the door to a theory of endogenous …

conditions similar to those necessary to guarantee the existence of GEI equilibrium. We argue that default is thus reasonably …We extend the standard model of general equilibrium with incomplete markets (GEI) to allow for default. The … equilibrating variables include aggregate default levels, as well as prices of assets and commodities. Default can be either …