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Competitive equilibria with limited enforcement

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  • Patrick J. Kehoe
  • Fabrizio Perri

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)

Suggested Citation

  • Patrick J. Kehoe & Fabrizio Perri, 2002. "Competitive equilibria with limited enforcement," Working Papers 621, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmwp:621
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    References listed on IDEAS

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    More about this item

    Keywords

    Equilibrium (Economics); Credit; International trade;
    All these keywords.

    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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