Regularity and Pareto Improving on financial equilibria with endogenous borrowing restrictions

Michele Gori, Marina Pireddu () and Antonio Villanacci ()
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Marina Pireddu: Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze
Antonio Villanacci: Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze

No 2010-08, Working Papers - Mathematical Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: We consider a pure exchange, general equilibrium model, with two periods and a finite number of states, commodities, numeraire assets, and households. Participation in the asset markets is restricted in a household specific manner, imposing upper bounds on the amounts of borrowing which can be obtained using assets. Those bounds are assumed to be endogenous, i.e., they depend on asset and commodity prices. After establishing existence of equilibria, we show that, generically in the set of the economies, equilibria are finite, regular and suboptimal. Then, we restrict our attention to the significant set of economies in which some associated equilibria exhibit a sufficiently high number of strictly binding participation constraints. We prove that, generically in that set, those equilibria are Pareto improvable through a local change of the participation constraints.

Keywords: General equilibrium; restricted participation; financial markets; suboptimality; Pareto improving. (search for similar items in EconPapers)
JEL-codes: D50 D53 D61 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2010-06, Revised 2012-08
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (1)

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