Collateral Equilibrium: A Basic Framework

John Geanakoplos () and William Zame
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John Geanakoplos: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/john-geanakoplos

No 1906, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: Much of the lending in modern economies is secured by some form of collateral: residential and commercial mortgages and corporate bonds are familiar examples. This paper builds an extension of general equilibrium theory that incorporates durable goods, collateralized securities and the possibility of default to argue that the reliance on collateral to secure loans and the particular collateral requirements chosen by the social planner or by the market have a profound impact on prices, allocations, market structure and the efficiency of market outcomes. These findings provide insights into housing and mortgage markets, including the sub-prime mortgage market.

Keywords: Collateral; Default; GEI (search for similar items in EconPapers)
JEL-codes: C5 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2013-08
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Published in Economic Theory (August 2014), 56(3): 443-492

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Related works:
Journal Article: Collateral equilibrium, I: a basic framework (2014)
Working Paper: Collateral Equilibrium: A Basic Framework (2013)
Working Paper: Collateral Equilibrium - A Basic Framework (2013)
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