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Communication, commitment, and growth

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  • Albert Marcet
  • Ramon Marimon

Abstract

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.

Suggested Citation

  • Albert Marcet & Ramon Marimon, 1992. "Communication, commitment, and growth," Discussion Paper / Institute for Empirical Macroeconomics 74, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmem:74
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    References listed on IDEAS

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    1. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    2. Chari, V V & Kehoe, Patrick J, 1990. "Sustainable Plans," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 783-802, August.
    3. Larry E. Jones & Rodolfo Manuelli, 1990. "A Convex Model of Equilibrium Growth," NBER Working Papers 3241, National Bureau of Economic Research, Inc.
    4. Timothy J. Kehoe & David K. Levine, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 865-888.
    5. 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.
    6. Marimon, Ramon, 1989. "Stochastic turnpike property and stationary equilibrium," Journal of Economic Theory, Elsevier, vol. 47(2), pages 282-306, April.
    7. 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 473-491, June.
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    Keywords

    Economic development;

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