Selected working papers

  • Fragility of Competitive Equilibrium with Risk of Default (with Gaetano Bloise andd Pietro Reichlin), mimeo, December, 2011

    • Abstract
    We study competitive equilibrium in sequential economies under limited commitment. Default induces permanent exclusion from financial markets and endogenously determined solvency constraints prevent debt repudiation. Our analysis shows that such an enforcement mechanism is essentially fragile, leading to equilibrium multiplicity. We accomplish this by establishing Welfare Theorems under a weaker notion of constrained efficiency, inspired by Malinvaud, corresponding to the absence of welfare improving feasible redistributions over finite (though indefinite) horizons. A Negishi's Method permits to show that, for any arbitrary value of social welfare in between autarchy and constrained optimality, there exists an equilibrium attaining that value. Thus, competitive equilibria might differ dramatically in terms of volumes of trade, asset price volatility, individuals' ability to insure against idiosyncratic risk and consumption inequality.
    Keywords: Limited commitment; solvency constraints; Malinvaud efficiency; Welfare Theorems; Negishi's Method; indeterminacy; market collapse.
    JEL Classifications: D50, D52, D61, E44, G13

  • Production and financial policy under asymmetric information (with J. Dréze and E. Minelli), CORE Discussion Paper 2004

    • Abstract
    We propose an extension of the standard general equilibrium model with production and incomplete markets to situations in which (i) private investors have limited information on the returns of specific assets, (ii) managers of firms have limited information on the preferences of individual shareholders. The extension is obtained by the assumption that firms are not traded directly but grouped into ‘sectorial’ funds. In our model the financial policy of the firm is not irrelevant; we define a decision criterion for the firm that takes into account both its production and financial decisions. With this criterion, we prove the existence of equilibria. Then we discuss the nature of the inefficiencies introduced by the presence asymmetric information. In an appendix we illustrate the properties of the model in the CAPM framework.
    JEL Classifications: D52, D81, D82.
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