: agents choose how much to borrow using a risky asset as collateral, and there are no ad hoc collateral constraints. When the … risky asset is financial-namely, its payoff does not depend on ownership (such as a bond)- collateral requirements are high … as a firm)-collateral requirements are lower and default occurs. The experimental outcomes are in line with the theory …

robustly destroys competitive equilibrium. The need for collateral would seem to cause under-investment. Our analysis … illustrates a countervailing force: goods that serve as collateral yield additional services and are therefore over-valued and … over-produced. In models without cash flow problems there is never marginal under-investment on collateral. …

: agents choose how much to borrow using a risky asset as collateral, and there are no ad hoc collateral constraints. When the … risky asset is financial-namely, its payoff does not depend on ownership (such as a bond)- collateral requirements are high … as a firm)-collateral requirements are lower and default occurs. The experimental outcomes are in line with the theory …