THE WELFARE COST OF MARKET INCOMPLETENESS: OPTIMAL FINANCIAL CONTRACTS WITH NON-ENFORCEABILITY CONSTRAINTS

Thomas Cooley Vincenzo Quadrini and Ramon Marimon
Additional contact information
Thomas Cooley Vincenzo Quadrini: University of Rochester
Authors registered in the RePEc Author Service: Thomas Cooley and Vincenzo Quadrini

No 313, Computing in Economics and Finance 2000 from Society for Computational Economics

Abstract: In this paper we develop a general equilibrium model in which firms finance investment by signing long-term contracts with a financial intermediary. Due to enforceability problems, financial contracts are constrained optimal, that is, they maximize the surplus of the contract subject to incentive compatibility constraints. By comparing this model with an alternative model in which contracts are fully enforceable, we evaluate the quantitative importance of non-enforceability for the aggregate allocation of the economy. We find that in the steady state the welfare level in the economy with enforceable contracts is 2.6 percent larger than in the economy with non-enforceable contracts.

Date: 2000-07-05
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: The Welfare Cost of Market Incompleteness: Opitmal Financial Contracts with Non-Enforceability Constraints (2000)
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: https://EconPapers.repec.org/RePEc:sce:scecf0:313

Access Statistics for this paper

More papers in Computing in Economics and Finance 2000 from Society for Computational Economics CEF 2000, Departament d'Economia i Empresa, Universitat Pompeu Fabra, Ramon Trias Fargas, 25,27, 08005, Barcelona, Spain. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().