Distinguishing limited commitment from moral hazard in models of growth with inequality

Anna L. Paulson and Robert M. Townsend

No WP-03-06, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: We use non-parametric, reduced form and structural techniques to distin-guish the micro-economic foundations of two models of growth with increasing inequality using new data from rural and semi-urban households in Thailand. We estimate a limited commitment model that is similar to Evans and Jovanovic (1989) and a moral hazard model that is an extension of Aghion and Bolton (1996). Both models emphasize the role of occupational choice and financial constraints. While the models share many implications, they are distinguished by their assumptions about the nature of financial market imperfections. We provide structural and reduced form evidence that the dominant source of credit market imperfections varies with wealth. For poorer households limited commit-ment is the dominant concern. However, as wealth increases moral hazard gains importance. These findings provide a rationale for important characteristics of the financial environment in Thailand.

Keywords: Financial markets; Wealth (search for similar items in EconPapers)
Date: 2003
View list of references

Downloads: (external link)
http://www.chicagofed.org/publications/workingpapers/papers/wp2003-06.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedhwp:wp-03-06

Ordering information: This working paper can be ordered from
http://www.frbchi.or ... nt_order_script.html

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of Chicago
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().