Economic Theory

, Volume 56, Issue 3, pp 443–492 | Cite as

Collateral equilibrium, I: a basic framework

  • John Geanakoplos
  • William R. Zame
Research Article


Much of the lending in modern economies is secured by some form of collateral: residential and commercial mortgages and corporate bonds are familiar examples. This paper builds an extension of general equilibrium theory that incorporates durable goods, collateralized securities, and the possibility of default to argue that the reliance on collateral to secure loans and the particular collateral requirements chosen by the social planner or by the market have a profound impact on prices, allocations, market structure, and the efficiency of market outcomes. These findings provide insights into housing and mortgage markets, including the subprime mortgage market.


Collateral Default GEI 

JEL Classification



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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Santa Fe InstituteSanta FeUSA
  2. 2.Yale UniversityNew HavenUSA
  3. 3.UCLALos AngelesUSA
  4. 4.EIEFRomeItaly

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