Communication, commitment, and growth
We study the effect on the growth of an economy of alternative financing opportunities in a stochastic growth model with incentive constraints. Efficient accumulation mechanisms are designed and computed for economies that differ in their incentive structure. We show that when borrowing is subject to information constraints, there is a computable efficient transfer mechanism that does not affect capital accumulation and investment patterns, even though consumption patterns and the distribution of wealth are affected. In contrast, enforcement constraints can severely reduce the outside financing opportunities and affect investment patterns and economic growth. We adapt numerical algorithms for obtaining numerical solutions of these models.
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References listed on IDEAS
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- Townsend, R.M., 1991.
"Risk and Insurance in Village India,"
University of Chicago - Economics Research Center
91-3, Chicago - Economics Research Center.
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- repec:bla:restud:v:60:y:1993:i:4:p:865-88 is not listed on IDEAS
- Timothy J. Kehoe & David K. Levine, 1992.
"Debt constrained asset markets,"
445, Federal Reserve Bank of Minneapolis.
- Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Brock, William A. & Mirman, Leonard J., 1972. "Optimal economic growth and uncertainty: The discounted case," Journal of Economic Theory, Elsevier, vol. 4(3), pages 479-513, June.
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