Enterprise Dynamics and Finance: Distinguishing Mechanism Design from Exogenously Incomplete Markets Models
AbstractWe formulate and solve a range of dynamic models of information-constrained credit markets that allow for moral hazard and unobservable investment. We compare them to the exogenously incomplete markets environments of autarky, saving only, and borrowing and lending in a single asset. We use computational methods based on mechanism design theory, linear programming, and maximum likelihood techniques to structurally estimate, compare and statistically distinguish among the competing theoretical models of credit market imperfections. Our methods can be applied with both cross-sectional and panel data and allow for measurement error and unobserved heterogeneity in initial conditions. The models match major stylized facts from the empirical literature on firm dynamics. We find that using consumption, cashflow and investment data jointly or using dynamic data improves the researcher's ability to distinguish across the various model regimes relative to using consumption or investment only data, especially in the presence of high measurement error. We also estimate our models using data on Thai households running small businesses. We find that the borrowing and saving only regimes provide the best fit when using joint data on consumption, cashflow and investment.
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 InfoPaper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 846.
Date of creation: 2008
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marco Cagetti & Mariacristina De Nardi, 2005.
"Wealth inequality: data and models,"
Working Paper Series
WP-05-10, Federal Reserve Bank of Chicago.
- Ana Fernandes & Christopher Phelan, 1999.
"A recursive formulation for repeated agency with history dependence,"
259, Federal Reserve Bank of Minneapolis.
- Fernandes, Ana & Phelan, Christopher, 2000. "A Recursive Formulation for Repeated Agency with History Dependence," Journal of Economic Theory, Elsevier, vol. 91(2), pages 223-247, April.
- Gine, Xavier, 2005. "Access to capital in rural Thailand : an estimated model of formal versus informal credit," Policy Research Working Paper Series 3502, The World Bank.
- Doepke, Matthias & Townsend, Robert M., 2006.
"Dynamic mechanism design with hidden income and hidden actions,"
Journal of Economic Theory,
Elsevier, vol. 126(1), pages 235-285, January.
- Doepke, Matthias & Townsend, Robert M, 2004. "Dynamic Mechanism Design with Hidden Income and Hidden Auctions," CEPR Discussion Papers 4455, C.E.P.R. Discussion Papers.
- Matthias Doepke & Robert M. Townsend, 2002. "Dynamic Mechanism Design With Hidden Income and Hidden Actions," UCLA Economics Working Papers 818, UCLA Department of Economics.
- Abraham Arpad & Nicola Pavoni, 2004.
"Efficient Allocations, with Moral Hazard and Hidden Borrowing and Lending,"
122247000000000138, UCLA Department of Economics.
- Abraham, Arpad & Pavoni, Nicola, 2004. "Efficient Allocations with Moral Hazard and Hidden Borrowing and Lending," Working Papers 04-05, Duke University, Department of Economics.
- Orazio Attanasio & Nicola Pavoni, 2004. "Testing Private Information Models with Asset Accumulation," 2004 Meeting Papers 436, Society for Economic Dynamics.
- Anna L. Paulson & Robert M. Townsend & Alexander Karaivanov, 2006. "Distinguishing Limited Liability from Moral Hazard in a Model of Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 114(1), pages 100-144, February.
- Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
- Karaivanov, Alexander, 2012. "Financial constraints and occupational choice in Thai villages," Journal of Development Economics, Elsevier, vol. 97(2), pages 201-220.
- Lehnert, Andreas & Ligon, Ethan & Townsend, Robert M., 1999. "Liquidity Constraints And Incentive Contracts," Macroeconomic Dynamics, Cambridge University Press, vol. 3(01), pages 1-47, March.
- Paulson, Anna L. & Townsend, Robert, 2004. "Entrepreneurship and financial constraints in Thailand," Journal of Corporate Finance, Elsevier, vol. 10(2), pages 229-262, March.
- Sonia Ruano & Robert M. Townsend & Jesus Saurina & Alexander Karaivanov, 2010.
"No Bank, One Bank, Several Banks: Does It Matter for Investment?,"
2010 Meeting Papers
669, Society for Economic Dynamics.
- Alexander Karaivanov & Sonia Ruano & Jesús Saurina & Robert Townsend, 2010. "No bank, one bank, several banks: does it matter for investment?," Banco de Espaï¿½a Working Papers 1003, Banco de Espa�a.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.