| This dissertation develops techniques for the analysis of general equilibrium models of investment and growth in which agents cannot commit to honoring their contracts, and studies the application of these limited commitment models to the issue of international capital flows under repudiation risk.; After an introductory chapter, Chapter Two studies the set of stationary efficient allocations in a large linear production economy with limited commitment. Techniques for the analysis of these allocations are developed, and a closed form solution is derived. The model is then applied to study the effect of changes in risk sharing on growth. We find, in contrast to models in which risk sharing is limited by asymmetric information, that limited commitment has an ambiguous effect on capital accumulation and growth. This Chapter also studies the decentralization of these efficient allocations as a competitive equilibrium with solvency constraints, and finds that the form of these constraints is linear in accumulated capital.; Chapter Three studies the application of limited commitment models to international capital flows with repudiation risk. In contrast to much of the literature, we allow a countries individual residents to make their own foreign investment decisions. We find that if individual residents are also able to make their own default decisions, capital flows are inefficiently small. Efficiency can be improved by subsidizing access to international capital markets. If only the national government can default, individual investment decisions aggregate to those of a representative agent.; A central issue in recent proposals for reform of the international financial system has the introduction of an involuntary workout procedure for international debtors. Chapter Four presents a model of capital flows under repudiation risk and uses it to investigate this proposal. We find that changes to the nature of sovereign immunity legislation are likely to have reduced the efficacy of private, wholly voluntary, mechanisms for enforcing creditor solidarity, perhaps constituting a case for involuntary mechanisms. |
