Creator: Boyd, John H. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 512 Abstract:
We investigate ex-ante efficient contracts in an environment in which implementation is costless. In this environment, standard debt contracts will typically not be optimal. Optimal contracts may involve defaults, even in states in which the borrower is fully able to repay. We then examine the welfare costs of arbitrarily restricting the set of feasible contracts to standard debt contracts. When model parameters are calibrated to realistic values, the welfare loss from exogenously imposing this restriction is extremely small. Thus, if the implementation costs are actually nontrivial (as seems likely), standard debt contracts will be (very close to) optimal.
Stichwort: Ex ante contract, CESV, CSV, Loans, Costly ex-post state verification, Contracts, Bankruptcy, Debt, Costly state verification, Standard debt contract, Optimal contract, and Financial contract Fach: G10 - General Financial Markets: General (includes Measurement and Data) and D86 - Economics of Contract: Theory
Creator: Townsend, Robert M., 1948- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 80 Abstract:
This paper focuses on avoidable moral hazard and offers one explanation for limited insurance markets, for closely held firms, and for seemingly simple as opposed to contingent forms of debt. Agents have random endowments of a consumption good which are such that there are gains to trading contingent claims. But any realization of an endowment is known only by its owner unless a verification cost is borne. Contracts in such a setting are said to be consistent if agents submit to verification and honor claims in accordance with prior agreements. The Pareto optimal consistent contracts which emerge are shown to have familiar characteristics.
Stichwort: Competition, Contracts, Avoidable moral hazard, and General equilibrium theory Fach: D50 - General equilibrium and disequilibrium - General, D61 - Welfare economics - Allocative efficiency ; Cost-benefit analysis, D11 - Household behavior and family economics - Consumer economics : Theory, and D86 - Information, knowledge, and uncertainty - Economics of contract : Theory
Creator: Townsend, Robert M., 1948- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 80 Abstract: Stichwort: Competition, Contracts, Avoidable moral hazard, and General equilibrium theory Fach:
Creator: Boyd, John H. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 522 Abstract:
We consider a two country growth model with international capital markets. These markets fund capital investment in both countries, and operate subject to a costly state verification (CSV) problem. Investors in each country require some external finance, but also provide internal finance, which mitigates the CSV problem. When two identical (except for their initial capital stocks) economies are closed, they necessarily converge monotonically to the same steady state output level. Unrestricted international financial trade precludes otherwise identical economies from converging, and poor countries are necessarily net lenders to rich countries. Oscillation in real activity and international capital flows can occur.
Stichwort: Credit, Closed economy, Credit rationing, CSV, Open economy, Costly state verification, International lending, International capital markets, and Capital investment Fach: O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance and F34 - International Lending and Debt Problems
Creator: Nevin, Edward. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 9 Beschreibung:
The 1972 version of WP9 was published as part of the Ninth District Economic Series.
Stichwort: Banking, Regionalism, and Policy making Fach: G21 - Financial institutions and services - Banks ; Other depository institutions ; Micro finance institutions ; Mortgages and R58 - Regional government analysis - Regional development policy
Creator: Townsend, Robert M., 1948- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 77 Abstract:
This thesis consists of a series of essays on the theory of exchange under uncertainty. The first essay examines the welfare implications of futures markets in the context of complete markets for contingent claims. It is shown that in a C-good, S-state world the equilibrium allocations resulting from the operation of pre-state noncontingent futures markets and post-state spot markets may be Pareto optimal. This proposition turns on the fact that a futures contract can be interpreted as a security whose state-specific return is the post-state spot price. If the matrix of spot prices has rank S, then, with futures and spot markets, agents can achieve the same allocations over states as with complete markets for contingent claims.
Stichwort: Uncertainty and Markets Fach: Y40 - Dissertations (unclassified), G10 - General financial markets - General, and D80 - Information, knowledge, and uncertainty - General
Creator: Green, Edward J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 509 Abstract:
Thinking regarding the privatization of state industries and enterprises in the former Comecon countries has tended to focus on the efficiency gains that would occur in the privatized sector. Based on the comparatively good performance and the rather rigid configuration of Comecon production institutions, the scope for such productivity gains seems small. Rather, productivity and innovation in the post-Comecon economies are likely to depend greatly on the emergence of new, initially small, entrepreneurial firms. The extent and form of privatization may affect these firms' prospects for success. How the privatized-firm and entrepreneurial sector will interact depends on public-finance considerations as well as on considerations of industrial organization.
Stichwort: Growth, Soviet bloc, Entrepreneurship, Comecon, State enterprise, Private enterprise, Council for Mutual Economic Assistance, Privatization, and Eastern bloc Fach: G38 - Corporate finance and governance - Government policy and regulation, L33 - Nonprofit organizations and public enterprise - Comparison of public and private enterprises ; Privatization ; Contracting out, and L16 - Market structure, firm strategy, and market performance - Industrial organization and macroeconomics : Industrial structure and structural change ; Industrial price indices
Creator: Anderson, Paul A. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 61 Abstract:
This paper puts forward a method for simulating an existing macroeconometric model while maintaining the additional assumption that individuals form their expectations rationally. This simulation technique is a first response to Lucas' criticism that standard econometric policy evaluation allows policy rules to change but doesn't allow expectations rules to change as economic theory predicts they will. The technique is applied to a version of the St. Louis Federal Reserve Model with interesting results. The rational expectations version of the St. Louis Model exhibits the same neutrality with respect to certain policy rules as small, analytic rational expectations models considered by Lucas, Sargent, and Wallace.
Stichwort: Rational expectations theory, Forecasting, and Simulation Fach: C53 - Econometric modeling - Forecasting and other model applications