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Full-Text Articles in Social and Behavioral Sciences
Default Penalty As A Disciplinary And Selection Mechanism In Presence Of Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Default Penalty As A Disciplinary And Selection Mechanism In Presence Of Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Cowles Foundation Discussion Papers
Closed exchange and production-and-exchange economies may have multiple equilibria, a fact that is usually ignored in macroeconomic models. Our basic argument is that default and bankruptcy laws are required to prevent strategic default, and these laws can also serve to provide the conditions for uniqueness. In this paper we report experimental evidence on the effectiveness of this approach to resolving multiplicity: society can assign default penalties on fiat money so the economy selects one of the equilibria. Our data show that the choice of default penalty takes the economy to the neighborhood of the chosen equilibrium. The theory and evidence …
Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Cowles Foundation Discussion Papers
The possibility of the presence of multiple equilibria in closed exchange and production-and-exchange economies is usually ignored in macroeconomic models even though they are important in real economies. We argue that default and bankruptcy laws serve to provide the conditions for uniqueness of an equilibrium. In this paper, we report experimental evidence on the effectiveness of this approach to resolving multiplicity: a society can assign default penalties on fiat money so that the economy selects one of the equilibria. The laboratory data show that the choice of default penalty takes the economy near the chosen equilibrium. The theory and evidence …
Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Default Penalty As A Selection Mechanism Among Multiple Equilibria, Juergen Huber, Martin Shubik, Shyam Sunder
Cowles Foundation Discussion Papers
Closed exchange and production-and-exchange economies may have multiple equilibria, a fact that is usually ignored in macroeconomic models. Our basic argument is that default and bankruptcy laws are required to prevent strategic default, and these laws can also serve to provide the conditions for uniqueness. In this paper, we report experimental evidence on the effectiveness of this approach to resolving multiplicity: a society can assign default penalties on fiat money so that the economy selects one of the equilibria. Our data show that the choice of default penalty takes the economy close to the chosen equilibrium. The theory and evidence …