Proportional compensation mechanisms in financial systems
Calleja, P., Llerena, F. (2024): "Proportional clearing mechanisms in financial systems: An axiomatic approach", Journal of Mathematicall Economics
In this paper, we address the problem of compensation of mutual obligations between agents when a financial network collapses. We adopt an axiomatic approach and present the first comprehensive characterization of rules based on the principle of proportionality, considering the entire domain of financial systems. Unlike an earlier attempt by Csóka and Herings (2021), which addressed this issue in a context where agents had strictly positive initial endowments, we show that their properties do not fully capture the set of proportional rules when extended to the full domain of financial systems. To overcome this limitation, we introduce new properties that emphasize the net value or utility of the companies in the network. We show that a compensation mechanism satisfies the properties of compatibility, limited liability, absolute priority, continuity and non-manipulability by clones if and only if each agent receives a payment proportional to the value of his credits. This characterization is valid in the framework studied by Csóka and Herings (2021).
