Department of Economics · University of Glasgow
I joined the Department of Economics at the University of Glasgow in May 2013. Prior to this, I held academic appointments at the University of Exeter, serving as Lecturer and later Associate Professor between 2006 and 2013, and at the University of Sorbonne as a Marie Curie Fellow from 2004 to 2006. I received my PhD in Economics from the Université Catholique de Louvain in 2004. Since 2024 I am a fellow of the Society for the Advancement of Economic Theory (SAET).
My research spans general equilibrium theory, macroeconomics, and optimisation, with a focus on foundational questions in economic theory. My work in general equilibrium and macroeconomics examines environments featuring asymmetric information, transaction costs, endogenous borrowing constraints, limited commitment, and sovereign debt. In optimisation, my research centres on dynamic programming and fixed-point theory, contributing to the analytical tools used to study dynamic economic environments.
We show that a temporary tightening of unsecured credit limits can raise welfare in competitive economies with limited commitment. When default excludes agents from borrowing but not saving, the value of default becomes price-dependent. Because agents do not internalize how borrowing limits affect equilibrium prices and participation constraints, laissez-faire limits need not be welfare-maximizing. A pre-announced, transitory tightening raises bond prices (lowers interest rates), reduces the value of default, and relaxes self-enforcing borrowing limits in earlier periods. If the resulting expansion of risk sharing outweighs the temporary distortion when the cap binds, the policy delivers an ex ante Pareto improvement. The mechanism has a natural macroprudential interpretation, implies under certain conditions that reneging cannot be supported by unanimity once the policy is announced, and can also deliver welfare gains even in the case of no output penalties, low interest rates, and bubbly debt limits.
In the presence of market failures, welfare-improving policy interventions are commonly studied through the first-order conditions of a social planning program: A benevolent government maximizes social welfare, subject to feasibility constraints, by means of a limited set of instruments, such as taxes, quantity restrictions or other forms of market regulation. However, it is also well-understood that this otherwise powerful method fails due to nonconvexities caused by the pecuniary externality, even though the economy’s primitives satisfy canonical restrictions. We argue that, despite this failure, the first-order conditions of the social planning program still exhaustively characterize the local absence of robust Pareto-improving policies. Indeed, we propose alternative approaches to robustness, all concurring to reveal the fragility of any residual Pareto improvement when the planner’s first-order conditions are satisfied. Any remaining scope for welfare enhancement must rely on an implausibly accurate knowledge of the economy’s primitives or on an exact implementation of the policy. Our findings provide a rigorous foundation for the widespread use ofthe first-order conditions of Ramsey-type planning programs both in macroeconomics and microeconomics, as illustrated by applications to the recent literature on macroprudential policies.
This paper offers fresh analytical insights on the broader debate regarding the conditions under which reputation-based mechanisms can support sovereign debt repayment. We contend that when additional punitive measures--beyond simple exclusion from credit markets--impose real output losses (for example, through trade sanctions, legal penalties, or diminished trust in financial institutions), reputational considerations can meaningfully support lending relationships. The central idea is that output costs function as a commitment mechanism: they mitigate self-fulfilling pessimism, where investors are unwilling to provide credit beyond the level implied by output costs because they anticipate that the sovereign assigns little value to future participation in financial markets. Our arguments strengthen the theoretical foundations for sovereign lending and offer a more nuanced view of how enforcement, reputation, and direct sanctions interact in international markets.
Econometrica · Journal of Economic Theory · Games and Economic Behavior · Theoretical Economics · International Economic Review · Journal of Mathematical Economics · Economic Theory · European Economic Review · B.A. Journal of Theoretical Economics · Economics Letters · Journal of Macroeconomics · Macroeconomic Dynamics · Journal of Public Economic Theory · Journal of Dynamics and Games · Mathematical Social Sciences
University of Paris-Dauphine (May 2023) · Australian National University (July 2022) · Australian National University (July–September 2019) · Yeshiva University (April 2018) · Virginia Tech (October 2017) · University of Paris-Dauphine (May 2017) · Yeshiva University (May 2016) · Kobe University (November 2015) · University of Paris-Dauphine (June–July 2015) · Yeshiva University (March 2015) · Kobe University (July 2014) · University of Evry (May–June 2013) · University of Illinois Urbana-Champaign (September 2012) · University of South California (April 2011) · Arizona State University (April 2011) · University of California Davis (March–May 2011) · Arizona State University (January 2009) · Nova University, Portugal (March 2006) · Arizona State University (March 2005) · University of Alabama (November 2002)
Email: yiannis.vailakis@glasgow.ac.uk
Office: 637 Adam Smith Building