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Recourse Loans and Ponzi Schemes

Pascoa, Mario and Seghir, Abdelkrim (2019) Recourse Loans and Ponzi Schemes Economic Theory. pp. 1-24.

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Abstract

Non-recourse borrowing leaves no room for Ponzi schemes, as shown by Araujo et al. (Econometrica 70:1613–1638, 2002). This is not the case with recourse loans, for which, in the event of default and on top of the foreclosure of the collateral, the debtor’s estate can be seized or (in a way common in the GE literature) the debtor can suffer utility penalties.We focus on the latter and showthat infinite horizon equilibrium with recourse exists in some interesting cases: (1) if utility penalties are low enough and the collateral does not yield utility (for example, when it is a productive asset or a security) or (2) for a nominal promise backed by real collateral (such as mortgages, whose payments are not tied to a commodity price index).

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
NameEmailORCID
Pascoa, Mariom.pascoa@surrey.ac.uk
Seghir, Abdelkrim
Date : 2019
DOI : 10.1007/s00199-019-01218-3
Copyright Disclaimer : © The Author(s) 2019. Open Access. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.
Uncontrolled Keywords : Collateral; Ponzi schemes; Incomplete markets
Depositing User : Clive Harris
Date Deposited : 24 Sep 2019 13:53
Last Modified : 24 Sep 2019 13:53
URI: http://epubs.surrey.ac.uk/id/eprint/852771

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