Harsh default penalties lead to Ponzi schemes

Mário Páscoa, Abdelkrim Seghir

Research output: Contribution to journalArticlepeer-review

18 Citations (Scopus)

Abstract

In the presence of utility penalties, collateral requirements do not always eliminate the occurrence of Ponzi schemes. Harsh utility penalties may induce effective payments over collateral recollection values. In this event, loans can be larger than collateral costs and Ponzi schemes become possible. (C) 2007 Published by Elsevier Inc.
Original languageEnglish
Pages (from-to)270-286
JournalGames And Economic Behavior
Volume65
Issue number1
DOIs
Publication statusPublished - 1 Jan 2009

Keywords

  • Equilibrium
  • Incomplete markets
  • Default
  • Collateral
  • Utility penalties
  • Ponzi schemes

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