Harsh default penalties lead to Ponzi schemes

Mário Páscoa; Abdelkrim Seghir

doi:10.1016/j.geb.2007.10.002

Harsh default penalties lead to Ponzi schemes

Mário Páscoa, Abdelkrim Seghir

NOVA School of Business and Economics (NOVA SBE)

Research output: Contribution to journal › Article › peer-review

18 Citations (Scopus)

Abstract

In the presence of utility penalties, collateral requirements do not always eliminate the occurrence of Ponzi schemes. Harsh utility penalties may induce effective payments over collateral recollection values. In this event, loans can be larger than collateral costs and Ponzi schemes become possible. (C) 2007 Published by Elsevier Inc.

Original language	English
Pages (from-to)	270-286
Journal	Games And Economic Behavior
Volume	65
Issue number	1
DOIs	https://doi.org/10.1016/j.geb.2007.10.002
Publication status	Published - 1 Jan 2009

Keywords

Equilibrium
Incomplete markets
Default
Collateral
Utility penalties
Ponzi schemes

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10.1016/j.geb.2007.10.002

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title = "Harsh default penalties lead to Ponzi schemes",

abstract = "In the presence of utility penalties, collateral requirements do not always eliminate the occurrence of Ponzi schemes. Harsh utility penalties may induce effective payments over collateral recollection values. In this event, loans can be larger than collateral costs and Ponzi schemes become possible. (C) 2007 Published by Elsevier Inc.",

keywords = "Incomplete, infinite-horizon, penalties, Ponzi, Collateral, schemes, bankruptcy, Equilibrium, Default, economies, general, markets, Utility, incomplete, money, equilibrium, Equilibrium, Incomplete markets, Default, Collateral, Utility penalties, Ponzi schemes",

author = "M{\'a}rio P{\'a}scoa and Abdelkrim Seghir",

year = "2009",

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AU - Seghir, Abdelkrim

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AB - In the presence of utility penalties, collateral requirements do not always eliminate the occurrence of Ponzi schemes. Harsh utility penalties may induce effective payments over collateral recollection values. In this event, loans can be larger than collateral costs and Ponzi schemes become possible. (C) 2007 Published by Elsevier Inc.

KW - Incomplete

KW - infinite-horizon

KW - penalties

KW - Ponzi

KW - Collateral

KW - schemes

KW - bankruptcy

KW - Equilibrium

KW - Default

KW - economies

KW - general

KW - markets

KW - Utility

KW - incomplete

KW - money

KW - equilibrium

KW - Equilibrium

KW - Incomplete markets

KW - Default

KW - Collateral

KW - Utility penalties

KW - Ponzi schemes

U2 - 10.1016/j.geb.2007.10.002

DO - 10.1016/j.geb.2007.10.002

M3 - Article

SN - 0899-8256

VL - 65

SP - 270

EP - 286

JO - Games And Economic Behavior

JF - Games And Economic Behavior

IS - 1

ER -

Harsh default penalties lead to Ponzi schemes

Abstract

Keywords

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