Efficiency and the Role of Default When Security Markets are Incomplete

Efficiency and the Role of Default When Security Markets are Incomplete

This paper argues that default plays an important positive role in the economy. If markets are incomplete and traders are only able to enter into contracts that they will be able to execute regardless of future events, contingent contracting may be severely restricted. Moreover, opening new markets...

Ausführliche Beschreibung

Gespeichert in:
Bibliographische Detailangaben
Veröffentlicht in:The American economic review 1993-12, Vol.83 (5), p.1142-1164
1. Verfasser: Zame, William R.
Format: Artikel
Sprache:eng
Schlagworte:
Consumer economics
Consumer equilibrium
Contracts
Default
Economic conditions
Economic impact
Economic models
Economic theory
Efficiency
Endowments
Financial securities
Market equilibrium
Securities markets
Security portfolios
Security prices
Studies
Trade
Online-Zugang:Volltext
Tags: Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
Beschreibung
Zusammenfassung:This paper argues that default plays an important positive role in the economy. If markets are incomplete and traders are only able to enter into contracts that they will be able to execute regardless of future events, contingent contracting may be severely restricted. Moreover, opening new markets may not relieve these restrictions. Default promotes efficiency in a way that opening new markets does not, by making it possible for traders to enter into contracts that they will be able to execute with high probability, but not with certainty.
ISSN:0002-8282
1944-7981