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Sustainable debt

21 ottobre 2020 ore 12:00 - 13:00

Aula Luiss Research Seminars, Sede di Luiss

Speaker: Gaetano Bloise, Università Roma Tre

with Herakles Polemarchakis (Warwick) and Yiannis Vailakis (Glasgow)

Abstract:

“We argue that debt is sustainable at a competitive equilibrium due solely to the reputation for repayment, that is, even absent collateral or legal sanctions available to creditors. In an incomplete asset market, when the rate of interest falls recurrently below the rate of growth of the economy,  self-insurance is more costly than borrowing, and repayments  on loans are enforced by the implicit threat of loss of risk-sharing advantages of debt contracts. Private debt credibly circulates as a form of inside money and is not valued as a speculative bubble. Competitive equilibria with self-enforcing debt exist under a suitable hypothesis of gains from trade.”



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