UNIQUE MARKOV EQUILIBRIUM UNDER LIMITED COMMITMENT

摘要

I develop a recursive method for the characterization of competitive equilibrium under limited commitment with not-too-tight solvency constraints. The reputational mechanism is fragile, as it sustains constrained efficiency as well as a large set of constrained inefficient equilibria. However, I establish that the only strongly ergodic Markov equilibrium with trade is constrained efficient. The method relies on a planning program along with the theory of monotone concave operators. It is suitable for other applications to macroeconomics and dynamic contracts.