AN EVOLUTIONARY MODEL OF DEBT

A reputational model of debt is examined from an evolutionary game perspective. The game is played between randomly matched opponents and we ask whether debt can be supported in the long run steady state when lenders are given the option of joining an information sharing coalition. The players are forward-looking, but otherwise not very sophisticated. The paper uses a mix of analytical and computational methods and we actually simulate such an economy and examine long run steady states. Conclusions are drawn about the nature of institutions that support debt.