Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/253523 
Year of Publication: 
2021
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 16 [Issue:] 4 [Publisher:] The Econometric Society [Place:] New Haven, CT [Year:] 2021 [Pages:] 1513-1555
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
We show that debt is sustainable at a competitive equilibrium based solely on the reputation for repayment; that is, even without 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 the risk-sharing advantages of debt contracts. Private debt credibly circulates as a form of inside money, and it is not valued as a speculative bubble. Competitive equilibria with self-enforcing debt exist under a suitable hypothesis of gains from trade.
Subjects: 
Rate of interest
self-enforcing debt
Ponzi games
incomplete markets
competitive equilibrium
gains from trade
JEL: 
D52
F34
H63
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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