NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Alexander Karaivanov

Simon Fraser University
8888 University Drive, WMC 3602
Burnaby, B.C.
Canada V5A 1S6

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NBER Working Papers and Publications

November 2013Dynamic Financial Constraints: Distinguishing Mechanism Design from Exogenously Incomplete Regimes
with Robert M. Townsend: w19617
We formulate and solve a range of dynamic models of constrained credit/insurance that allow for moral hazard and limited commitment. We compare them to full insurance and exogenously incomplete financial regimes (autarky, saving only, borrowing and lending in a single asset). We develop computational methods based on mechanism design, linear programming, and maximum likelihood to estimate, compare, and statistically test these alternative dynamic models with financial/information constraints. Our methods can use both cross-sectional and panel data and allow for measurement error and unobserved heterogeneity. We estimate the models using data on Thai households running small businesses from two separate samples. We find that in the rural sample, the exogenously incomplete saving only and bo...

Published: Alexander Karaivanov & Robert M. Townsend, 2014. "Dynamic Financial Constraints: Distinguishing Mechanism Design From Exogenously Incomplete Regimes," Econometrica, Econometric Society, vol. 82(3), pages 887-959, 05. citation courtesy of

 
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