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Unique Markov Equilibrium Under Limited Commitment

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  • Gaetano Bloise

Abstract

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.

Suggested Citation

  • Gaetano Bloise, 2020. "Unique Markov Equilibrium Under Limited Commitment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(2), pages 721-751, May.
    • Handle: RePEc:wly:iecrev:v:61:y:2020:i:2:p:721-751
    DOI: 10.1111/iere.12438
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    References listed on IDEAS

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    Cited by:

    1. Gaetano Bloise & Paolo Siconolfi, 2022. "A Negishi Approach to Recursive Contracts," Econometrica, Econometric Society, vol. 90(6), pages 2821-2855, November.

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