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Competitive equilibria with limited enforcement

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  • Kehoe, Patrick J.
  • Perri, Fabrizio

Abstract

This study demonstrates how constrained efficient allocations can arise endogenously as equilibria in an economy with a limited ability to enforce contracts and with private agents behaving competitively, taking a set of taxes as given. The taxes in this economy limit risk-sharing and arise in an equilibrium of a dynamic game between governments of sovereign nations. The equilibrium allocations depend on governments choosing to tax both the repayment of international debt and the income from capital investment in their countries.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 119 (2004)
Issue (Month): 1 (November)
Pages: 184-206

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Handle: RePEc:eee:jetheo:v:119:y:2004:i:1:p:184-206

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Web page: http://www.elsevier.com/locate/inca/622869

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References

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  1. Karsten Jeske, 2005. "Private international debt with risk of repudiation," Working Paper, Federal Reserve Bank of Atlanta 2001-16, Federal Reserve Bank of Atlanta.
  2. V. V. Chari & Patrick E. Kehoe, 1990. "Sustainable Plans and Mutual Default," IMF Working Papers 90/22, International Monetary Fund.
  3. Timothy J. Kehoe & David K. Levine, 1992. "Debt constrained asset markets," Working Papers, Federal Reserve Bank of Minneapolis 445, Federal Reserve Bank of Minneapolis.
  4. Attanasio, Orazio & Rios-Rull, Jose-Victor, 2000. "Consumption smoothing in island economies: Can public insurance reduce welfare?," European Economic Review, Elsevier, vol. 44(7), pages 1225-1258, June.
  5. Patrick J. Kehoe & Fabrizio Perri, 2000. "International Business Cycles with Endogenous Incomplete Markets," NBER Working Papers 7870, National Bureau of Economic Research, Inc.
  6. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 383-96, March.
  7. V.V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans," Staff Report, Federal Reserve Bank of Minneapolis 122, Federal Reserve Bank of Minneapolis.
  8. Mark L. J. Wright, 2004. "Private capital flows, capital controls, and default risk," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Jun.
  9. Marianne Baxter & Mario J. Crucini, 1994. "Business Cycles and the Asset Structure of Foreign Trade," NBER Working Papers 4975, National Bureau of Economic Research, Inc.
  10. Juha Ilmari Seppala, 2000. "Asset Prices and Business Cycles Under Limited Commitment," Econometric Society World Congress 2000 Contributed Papers 0244, Econometric Society.
  11. Kletzer, Kenneth M. & Wright, Brian D., 1998. "Sovereign Debt as Intertemporal Barter," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt4qg3c42v, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  12. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report, Federal Reserve Bank of Minneapolis 146, Federal Reserve Bank of Minneapolis.
  13. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  14. Kocherlakota, Narayana R, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(4), pages 595-609, October.
  15. Ligon, Ethan & Thomas, Jonathan P & Worrall, Tim, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 69(1), pages 209-44, January.
  16. Kehoe, Timothy J & Levine, David K, 2001. "Liquidity Constrained Markets versus Debt Constrained Markets," Econometrica, Econometric Society, Econometric Society, vol. 69(3), pages 575-98, May.
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