Credit Markets, Limited Commitment, and Government Debt

Credit Markets, Limited Commitment, and Government Debt

A dynamic model with credit under limited commitment is constructed, in which limited memory can weaken the effects of punishment for default. This creates an endogenous role for government debt in credit markets. Default can occur in equilibrium, and government debt essentially plays a role as collateral and thus improves borrowers’ incentives. The optimal provision of government debt acts to ...

Credit Markets , Limited Commitment , and Government Debt ∗ Francesca

A dynamic model with credit under limited commitment is constructed, in which limited memory can weaken the effects of punishment for default. This creates an endogenous role for government debt in credit markets, and the economy can be non-Ricardian. Default can occur in equilibrium, and government debt essentially plays a role as collateral and thus improves borrowers’ incentives. The provisi...

Limited Commitment, Money, and Credit

This paper studies limited commitment and adverse selection in an economy in which private liabilities (inside money) can be used as instruments of intertemporal trade. The results suggest that in conjunction with adverse selection, the limited commitment problem may affect the behavior of intrinsically higher quality debtors more severely than lower quality ones. Nonetheless, a credit economy ...

Essays on commitment debt structure and government

Credit and Growth under Limited Commitment

We consider a linear growth model with idiosyncratic productivity shocks in which producers cannot commit to repay their loans. Borrowing constraints are determined endogenously by the borrowers’ incentives to repay, assuming that defaulters lose a share of output and are excluded from future trade in the credit market. We characterize necessary and sufficient conditions for the enforceability ...