Optimal Exclusion

Monnet, Cyril; Quintin, Erwan (June 2018). Optimal Exclusion (Discussion Papers). Bern: Department of Economics

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In a canonical model of borrowing and lending, an exclusion technology that features full exclusion for a deterministic number of periods following default maximizes stationary equilibrium welfare. This exclusion policy maximizes the stationary volume of mutually beneficial lending transactions. It also maximizes the average welfare of the excluded. The optimal length of exclusion depends on fundamentals such as borrower patience and the direct cost of default. It also depends on incentives to default for strategic rather than exogenous reasons.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Monnet, Cyril

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

Discussion Papers

Publisher:

Department of Economics

Language:

English

Submitter:

Lars Tschannen

Date Deposited:

02 Sep 2020 12:08

Last Modified:

02 Sep 2020 12:08

JEL Classification:

D52, D82

BORIS DOI:

10.7892/boris.145864

URI:

https://boris.unibe.ch/id/eprint/145864

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