Kehoe, PJ;
Perri, F;
(2004)
Competitive equilibria with limited enforcement.
Journal of Economic Theory
, 119
(1)
pp. 184-206.
10.1016/S0022-0531(03)00255-2.
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Abstract
We show how to decentralize constrained efficient allocations that arise from enforcement constraints between sovereign nations. In a pure exchange economy these allocations can be decentralized with private agents acting competitively and taking as given government default decisions on foreign debt. In an economy with capital these allocations can be decentralized if the government can tax capital income as well as default on foreign debt. The tax on capital income is needed to make private agents internalize a subtle externality. The decisions of the government can arise as an equilibrium of a dynamic game between governments.
| Type: | Article |
|---|---|
| Title: | Competitive equilibria with limited enforcement |
| Location: | Venice Int Univ, Venice, ITALY |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1016/S0022-0531(03)00255-2 |
| Publisher version: | https://doi.org/10.1016/S0022-0531(03)00255-2 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | Incomplete markets, Risk-sharing, Enforcement constraints, Sovereign debt, Decentralization, Sustainable equilibrium, Default |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10058354 |
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