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...
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| Veröffentlicht in: | The American economic review 1993-12, Vol.83 (5), p.1142-1164 |
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| creator | Zame, William R. |
| description | 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. |
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| identifier | ISSN: 0002-8282 |
| ispartof | The American economic review, 1993-12, Vol.83 (5), p.1142-1164 |
| issn | 0002-8282 1944-7981 |
| language | eng |
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| source | Business Source Complete; Periodicals Index Online; JSTOR Archive Collection A-Z Listing |
| subjects | 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 |
| title | Efficiency and the Role of Default When Security Markets are Incomplete |
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