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Harsh default penalties lead to Ponzi schemes
M.R. Páscoa,
Published in
Volume: 65
Issue: 1
Pages: 270 - 286
In the presence of utility penalties, collateral requirements do not always eliminate the occurrence of Ponzi schemes. Harsh utility penalties may induce effective payments over collateral recollection values. In this event, loans can be larger than collateral costs and Ponzi schemes become possible. © 2007.
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JournalGames and Economic Behavior