This paper states a question of financial economic reform on firms used to moral hazard situation. In a frame of political economy which argues a heterogeneity of interests, we assume firms have been in moral hazard and government sets the incentive structure where the firms are operating. The idea of Stackelberg leader was introduced to deal with the sequential decision mechanism to model firm and government decision-makings. We argue a firm has utility maximization objective function and responds to an incentive structure---so called 'reward system'---which is instituted by the government. A government is a leader in policy-making and a firm is a follower in response to the policy decision of government. A firm is assumed to be risk-averse and a government is assumed to be risk-neutral.; The specific target loan which is 'export support policy loan' was deemed as a reward to an export firm. This paper investigates how the political economy factors such as international pressure, and agenda changes influence a development policy-making and how a representative firm responds to these changes. We expected a firm decreased its export commitment when a government eliminated the favorable incentive system. A firm might look for other opportunities to maximize objective function. A government who received international pressure of more open economy also is expected to respond to exogenous changes which will be on export loan policy-makings and this new institution is expected to influence firm's commitment to exports. Thus, the objective of this paper is to investigate how a firm and government make their decisions when they consider each other's decision as sequentially given. Theoretical moral hazard model was constructed.; Empirically, we introduced various steps of econometric methods to prove inter-relationships. First, we used the time series data of South Korea which has to be checked about the stationarity. Second, we tested whether there are structural changes in each single equation. As expected, dummy variable for interaction is significantly related to each other's decision on both before-the-break and after-the-break. Third, we consider an inter-relationship in a simultaneous equation system to be made sense. We found there was an endogeneity by Hausman Specification Test. Fourth, an endogeneity paves a way for us to consider a Vector Autoregression Model (VAR). Forecast Error Variance Decomposition (FEUD) explains how much a variance of exports is influenced by export support loans and export loan is influenced by export commitment on both before-the-break and after-the-break with other variables considered. As argued, econometric methods prove, after the structural break, that a firm and government decrease their commitments in this political economy model which assumes a heterogeneity of interests and they may cause non-optimal economic outcomes in a moral hazard construction in a course of economic reforms.
展开▼
