A Stochastic Infinite-horizon Economy with Secured Lending, or Unsecured Lending and Bankruptcy
Modeling problems for a monetary economy are discussed and some examples are presented in the context of an inﬁnite-horizon economy with one or two types of traders, who use ﬁat money to buy a single perishable consumption good. Three instances are considered, all with transactions in ﬁat money. The ﬁrst model has no borrowing or lending. The second model permits both borrowing and lending, but all loans are secured. The third model has borrowing and unsecured lending, and takes into account the presence of debtors who are unable to honor their debts and go bankrupt. Borrowing and depositing take place through an outside bank, although in some circumstances a money market could be used instead. Conditions for diﬀerent forms of lending are discussed. This is a survey of three technical papers, where the mathematical models are developed in detail and the proofs are supplied.
Karatzas, Ioannis; Shubik, Martin; and Sudderth, William D., "A Stochastic Infinite-horizon Economy with Secured Lending, or Unsecured Lending and Bankruptcy" (1997). Cowles Foundation Discussion Papers. 1404.