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Journal ArticleDOI

A note on an optimal garnishing rule

01 Jan 1988-Economics Letters (North-Holland)-Vol. 27, Iss: 1, pp 5-6

AbstractA low information, optimal bankruptcy rule is described and analyzed for an exchange economy with credit

Topics: Bankruptcy (61%)

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Journal ArticleDOI
Abstract: We utilize the strategic market game approach to analyze the role and function of a mutual bank with variable fractional reserves, redemption in gold, and endogenous interest rate formation We specify the conditions of enough money and its distribution Using the continuum of traders model, we show existence and optimality for the case ofno bankruptcy as well as for the case in which there exists the potentiality of bankruptcy Finally, we analyze the relationship of the gearing ratio and the bankruptcy penalty with respect to the resulting equilibrium allocations

45 citations


Journal ArticleDOI
Martin Shubik1
Abstract: An exchange economy using gold as a means of payment is considered where it is possible to borrow gold in a money market. A positive money rate of interest is encountered as the shadow price of the capacity constraint in an economy without enough gold. The meaning of enough gold and the role of the default penalty are noted in the determination of the interest rate.

6 citations


Journal ArticleDOI
Abstract: Garnishment of wage as a way for creditors to enforce payment by unwilling or insolvent debtors, while very common in Germany and Switzerland, is not very successful Based on a dynamic model of debtor behaviour, this paper explores two alternatives of reform One is to reduce the rate of garnishment, which at present amounts to 100 percent of the wage income exceeding a defined subsistence level, thus probably destroying incentives to work According to model simulations, reducing the rate of garnishment is likely to result in an increase of labour supply but a decrease of garnishment revenue per period Second, the introduction of a debt release as it exists in the United States would have an ambiguous effect on labour supply While providing debtors with a fresh start, it would result a partial loss for creditors A Pareto improvement thus does not seem to be possible When taxpayers as an involved third party are taken into account, however, a potential Pareto improvement appears attainable through debt release

5 citations


Journal ArticleDOI
Abstract: A multistage economy with durables with finite and with unbounded lives is considered. The importance of the existence of both asset and rental markets is considered. It is shown that without rental markets efficiency may not be achieved and a stationary state that might exist with rental markets need not exist. The meaning of the existence of a 100% backed loan is considered. The roles of gold and land as stores of value and money are considered.

1 citations


Posted Content
Abstract: Several models of exchange are presented here to illustrate various conceptual problems in the microeconomic model of the velocity of money and the meaning of and cost of liquidity in an exchange economy without exogenous uncertainty.

References
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Journal ArticleDOI
01 Sep 1977
Abstract: Abstract : In several previous papers models of a monetary economy have been solved as a noncooperative game. The problem of granting credit and the possibility of bankruptcy was avoided by the artifact of considering that all traders were supplied with 'enough' of a commodity serving as a 'money' or means of payment so that there was no need to borrow. In this paper an outside bank, and borrowing are considered explicitly and the meaning of an optimal bankruptcy rule are considered. This paper deals primarily with problems in modelling and interpretation.

176 citations


Journal ArticleDOI
Abstract: In this paper we establish the existence of (a) an optimal bankruptcy rule which enables us to describe the Walrasian trading economy as a game with trade in fiat money; and (b) non- cooperative equilibrium points of this game which (in terms of prices and the final allocation yielded) include the competitive equilibrium points, and the accompanying money rate of interest (induced by borrowing at a central bank), when the bankruptcy rule is different from optimal.

28 citations