Promises Promises
Top Cited Papers
- 14 October 2018
- book chapter
- Published by Taylor & Francis
- p. 285-320
- https://doi.org/10.1201/9780429496639-12
Abstract
In the classical general equilibrium model, agents keep all their promises, every good is traded, and competition prevents any agent from earning superior returns on investments in financial markets. In this chapter I introduce the age-old problem of broken promises into the general equilibrium model, and I find that a new market dynamic emerges, based on collateral as a device to secure promises.Keywords
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