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Competitive equilibria with limited enforcement

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  • Kehoe, Patrick J.
  • Perri, Fabrizio

Abstract

Previous literature has shown that the study and characterization of constrained efficient allocations in economies with limited enforcement is useful to understand the limited risk sharing observed in many contexts, in particular between sovereign countries. In this paper we show that these constrained efficient allocations arise as equilibria in an economy in which private agents behave competitively, taking as given a set of taxes. We then show that these taxes, which end up limiting risk sharing, arise as an equilibrium of a dynamic game between governments. Our decentralization is different from the existing ones proposed in the literature. We find it intuitively appealing and we think it goes farther than the existing literature in endogenizing the primitive forces that lead to a lack of risk sharing in equilibrium. (Replaced by Staff Report No: 307)
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Suggested Citation

  • Kehoe, Patrick J. & Perri, Fabrizio, 2004. "Competitive equilibria with limited enforcement," Journal of Economic Theory, Elsevier, vol. 119(1), pages 184-206, November.
  • Handle: RePEc:eee:jetheo:v:119:y:2004:i:1:p:184-206
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    More about this item

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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