Competitive Equilibria With Limited Enforcement

Patrick J. Kehoe, Fabrizio Perri

NBER Working Paper No. 9077
Issued in July 2002
NBER Program(s):   EFG

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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Published: Kehoe, Patrick J. and Fabrizio Perri. "Competitive Equilibria With Limited Enforcement," Journal of Economic Theory, 2004, v119(1,Nov), 184-206.

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