The Myth of the East Asian Miracle: The Macroeconomic Implications of Soft Budgets

摘要

Suppose that, in an economy, there are a few large projects of high (expected) returns with a high aggregate risk and many smaller pro- jects of low (expected) returns with a low ag- gregate risk. Let us call the aggregate of the high-risk projects the risky project and the ag- gregate of the other projects the low-risk pro- ject. It is easy to imagine that, within a broad range of the parameters, a rational, risk-averse investor would diversity her investment port- folio between the assets of these two projects, reflecting the desire for a higher return and, at the same time, the desire to avoid excessive risks. Meanwhile, the total investment (sav- ings) of the investor should reflect the individ- ulal's balance between current and future consumption.