This paper studies the optimal determination of bankruptcy exemptions for risk averse borrowers who use unsecured contracts but have the possibility of defaulting. I show that, in a large class of economies, knowledge of four variables is sufficient to determine whether a bankruptcy exemption...

In this paper, I study the existence and uniqueness of recursive equilibria in economies with aggregate and idiosyncratic risk. Rather than relying on compactness to establish existence, I exploit the monotonicity property of the equilibrium model and rely on arguments from convex analysis. This...

Uniqueness of equilibrium is a relatively unexplored issue in incomplete markets compared with complete markets. This work shows that one-fund separation is sufficient for the uniqueness of equilibrium in a special class of incomplete markets with two agents and two assets. Specifically, it...

In this paper, we show that incomplete markets lead to trade imbalances. We use a two-period general equilibrium model with countries composed of heterogeneous households. We look at a world where, when markets are complete, countries engage in balanced trade; and we show that when some of those...

A classic characterization of competitive equilibria views them as feasible allocations maximizing a weighted sum of utilities. It has been applied to establish fundamental properties of the equilibrium notion, such as existence, determinacy, and computability. However, it fails for economies...

In this paper, we show that incomplete markets lead to trade imbalances. We use a two-period general equilibrium model with countries composed of heterogeneous households. We look at a world where, when markets are complete, countries engage in balanced trade and we show that when some of those...

At a competitive equilibrium of an incomplete-markets economy agents' marginal valuations for the tradable assets are equalized ex-ante. We characterize the finest partition of the state space conditional on which this equality holds for any economy. This leads naturally to a necessary and...

A classic characterization of competitive equilibria views them as feasible allocations maximizing a weighted sum of utilities. It has been applied to establish fundamental properties of the equilibrium notion, such as existence, determinacy, and computability. However, it fails for economies...