Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter January 8, 2003

Competitive Equilibria With Incomplete Markets and Endogenous Bankruptcy

Tarun Sabarwal

This paper constructs a model of an exchange economy in which bankruptcy arises in a manner similar to what we observe. Compared to related models, this model is a more realistic representation of some markets in which intertemporal assets are traded. Using standard and natural assumptions, it is shown that every economy represented by this model has an equilibrium. Therefore, bankruptcy can co-exist with smoothly functioning competitive markets in fairly general economies. Examples highlight some welfare effects of bankruptcy.

Published Online: 2003-1-8

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston