Savings and default by M. Udara Peiris and Alexandros P. Vardoulakis

By:

Peiris, M. Udara [author]

Contributor(s):

Vardoulakis, Alexandros P [co-authors]

Material type: Text

TextSeries: ; Volume 54, number 1Heildelberg : Springer, 2013Content type:

text

Media type:

unmediated

Carrier type:

volume

Subject(s):

Savings

LOC classification:

HB119 ECO

Online resources:

Click here to access online

Summary: In the presence of uninsurable idiosyncratic risk, the optimal credit contract allows for the possibility of default. In addition, the optimal contract incorporates a precautionary savings motive over and above what agents would otherwise save. When default is sufficiently high, credit markets may collapse. A regulatory requirement on the level of savings can increase risk sharing and improve welfare by increasing the gains to trade in credit exchange. Under the appropriate verifiability condition on the level of savings, an appropriate market structure, agents voluntarily increase their level of storage such that trade and welfare improve.

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Holdings
Item type	Current library	Call number	Vol info	Copy number	Status	Notes	Date due	Barcode
Journal Article	Main Library - Special Collections	HB119 ECO (Browse shelf(Opens below))	vol. 54, no. 1 (pages 153-180)	SP21036	Not for loan	For In house Use

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Previous	HB119 ECO Learning, teaching, and turn taking in the repeated assignment game	HB119 ECO Implementing efficient graphs in connection networks	HB119 ECO Information and σ-algebras	HB119 ECO Savings and default	HB119 ECO Information acquisition in conflicts	HB119 ECO A bargaining theory of the firm	HB119 ECO Essential equilibria of discontinuous games	Next

In the presence of uninsurable idiosyncratic risk, the optimal credit contract allows for the possibility of default. In addition, the optimal contract incorporates a precautionary savings motive over and above what agents would otherwise save. When default is sufficiently high, credit markets may collapse. A regulatory requirement on the level of savings can increase risk sharing and improve welfare by increasing the gains to trade in credit exchange. Under the appropriate verifiability condition on the level of savings, an appropriate market structure, agents voluntarily increase their level of storage such that trade and welfare improve.

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