Competitive Equilibria with Limited Enforcement
33 Pages Posted: 26 Jul 2002 Last revised: 1 Aug 2002
Date Written: July 2002
This study demonstrates how constrained efficient allocations can arise endogenously as equilibria in an economy with a limited ability to enforce contracts and with private agents behaving competitively, taking a set of taxes as given. The taxes in this economy limit risk-sharing and arise in an equilibrium of a dynamic game between governments of sovereign nations. The equilibrium allocations depend on governments choosing to tax both the repayment of international debt and the income from capital investment in their countries.
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