Academic Commons


General equilibrium with endogenous uncertainty and default

Chichilnisky, Graciela; Wu, Ho-Mou

In this paper we study the introduction of new assets which are oftenly observed to be defined in expected values rather than state by state, called the Arrow-Lind-Malinvaud (ALM) assets. We demonstrate that individual default emerges naturally in an economy where such ALM assets are introduced without completing all contingency markets. We further provide conditions under which individual default is propagated endogenously into a collective risk of widespread default in general equilibrium.



More About This Work

Academic Units
Department of Economics, Columbia University
Department of Economics Discussion Papers, 0506-29
Published Here
March 28, 2011


May 2006

Academic Commons provides global access to research and scholarship produced at Columbia University, Barnard College, Teachers College, Union Theological Seminary and Jewish Theological Seminary. Academic Commons is managed by the Columbia University Libraries.