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General equilibrium with endogenous uncertainty and default. (English) Zbl 1141.91589
Summary: We study the introduction of new assets that are defined in expected values rather than state by state. Individual default emerges naturally in an economy where such assets are introduced without completing all contingency markets. We further provide conditions under which individual default is propagated endogenously into a collective risk of widespread default in general equilibrium. We prove existence of a general equilibrium with endogenous uncertainty.

MSC:
91B50 General equilibrium theory
91B28 Finance etc. (MSC2000)
91B30 Risk theory, insurance (MSC2010)
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