tailieunhanh - Recursive macroeconomic theory, Thomas Sargent 2nd Ed - Chapter 23

Chapter 23 Two topics in international trade . Two dynamic contracting problems This chapter studies two models in which recursive contracts are used to overcome incentive problems commonly thought to occur in international trade. The first is Andrew Atkeson’s model of lending in the context of a dynamic setting | Chapter 23 Two topics in international trade . Two dynamic contracting problems This chapter studies two models in which recursive contracts are used to overcome incentive problems commonly thought to occur in international trade. The first is Andrew Atkeson s model of lending in the context of a dynamic setting that contains both a moral hazard problem due to asymmetric information and an enforcement problem due to borrowers option to disregard the contract. It is a considerable technical achievement that Atkeson managed to include both of these elements in his contract design problem. But this substantial technical accomplishment is not just showing off. As we shall see both the moral hazard and the self-enforcement requirement for the contract are required in order to explain the feature of observed repayments that Atkeson was after that the occurrence of especially low output realizations prompt the contract to call for net repayments from the borrower to the lender exactly the occasions when an unhampered insurance scheme would have lenders extend credit to borrowers. The second model is Bond and Park s recursive contract that induces moves to free trade starting from a Pareto non-comparable initial condition. The new policy is accomplished by a gradual relaxation of tariffs accompanied by trade concessions. Bond and Park s model of gradualism is all about the dynamics of promised values that are used optimally to manage participation constraints. - 817 - 818 Two topics in international trade . Lending with moral hazard and difficult enforcement Andrew Atkeson 1991 designed a model to explain how in defiance of the pattern predicted by complete markets models low output realizations in various countries in the mid-1980s prompted international lenders to ask those countries for net repayments. A complete markets model would have net flows to a borrower during periods of bad endowment shocks. Atkeson s idea was that information and enforcement problems .