A Negishi’s Approach to Competitive Equilibrium with Risk of Default

We study competitive equilibrium in sequential economies under limited commitment. Default induces permanent exclusion from nancial markets and endogenously determined solvency constraints prevent debt repudiation. We establish Welfare Theorems under a weaker notion of constrained efficiency, inspired by Malinvaud, corresponding to the absence of welfare improving feasible redistributions over nite (though indenite) horizons. A Negishi's Method permits to show that, for any arbitrary value of social welfare in between autarchy and constrained optimality, there exists an equilibrium attaining that value. This method is also exploited to verify equilibrium indeterminacy.We study competitive equilibrium in sequential economies under limited commitment. Default induces permanent exclusion from nancial markets and endogenously determined solvency constraints prevent debt repudiation. We establish Welfare Theorems under a weaker notion of constrained efficiency, inspired by Malinvaud, corresponding to the absence of welfare improving feasible redistributions over nite (though indenite) horizons. A Negishi's Method permits to show that, for any arbitrary value of social welfare in between autarchy and constrained optimality, there exists an equilibrium attaining that value. This method is also exploited to verify equilibrium indeterminacy.Non-Refereed Working Papers / of national relevance onl