Endogenous incomplete markets, enforcement constraints, and intermediation
AbstractAlvarez and Jermann (2000) show that the constrained efficient allocations of endowment economies with imperfect risk sharing due to limited commitment can be decentralized as competitive equilibria with endogenous debt constraints that are not too tight. These are the loosest possible borrowing limits that do not allow for default in equilibrium. However, such a decentralization is not possible in the presence of capital accumulation, since changes in the aggregate capital also affect the incentives to default. In a model with endogenous production, aggregate risk, and competitive intermediaries, we show that a decentralization with endogenous debt constraints is possible if one also imposes an upper limit on the intermediaries’ capital holdings.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Econometric Society in its journal Theoretical Economics.
Volume (Year): 1 (2006)
Issue (Month): 4 (December)
Contact details of provider:
Web page: http://econtheory.org
Complete markets; enforcement constraints; intermediation;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Krueger, Dirk & Perri, Fabrizio, 2010.
"Public versus Private Risk Sharing,"
CEPR Discussion Papers
7625, C.E.P.R. Discussion Papers.
- Sofia Bauducco & Francesco Caprioli, 2011.
"Optimal Fiscal Policy in a Small Open Economy with Limited Commitment,"
Working Papers Central Bank of Chile
644, Central Bank of Chile.
- Bauducco, Sofia & Caprioli, Francesco, 2014. "Optimal fiscal policy in a small open economy with limited commitment," Journal of International Economics, Elsevier, vol. 93(2), pages 302-315.
- Josef Schroth, 2012. "Financial Crisis Resolution," Working Papers 12-42, Bank of Canada.
- Josef Schroth, 2012. "Financial Crisis Resolution," 2012 Meeting Papers 617, Society for Economic Dynamics.
- Yena Park, 2012. "Optimal Taxation in a Limited Commitment Economy," PIER Working Paper Archive 12-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martin J. Osborne).
If references are entirely missing, you can add them using this form.