Essays in macroeconomics and political economy

Chapter 1: This chapter provides an answer to the Bulow and Rogoff (1989) sovereign debt paradox based on a political economy model of debt. It shows that the presence of political uncertainty reduces the ability of a country to save, and hence to replicate the debt contract after default. In a model where different parties alternate in power, an incumbent party with a low probability of remaining in power has a high short-term discount rate and is therefore unwilling to save. The current incumbent party realizes that in the future whoever achieves power will be impatient as well, making the accumulation of assets unsustainable. Because of their inability to save, politicians demand debt ex-post and the desire to borrow again in the future enforces repayment today. Chapter 2: In this chapter, I present a political economy model of government savings. Two political parties alternate in power every period. The party in power controls the government and decides how to allocate spending this period and how much to save for the future. No party has the ability to commit and at any point in time a party can spend all the income of the government in her own consumption and save nothing for the future. If both parties behave as previously described, then these strategies are the worst subgame perfect equilibria. However, parties are long run players in this political game, and they might be expected to coordinate and play more efficiently. I characterize the set of efficient subgame perfect equilibria. Chapter 3: This chapter studies the implementation of new ideas by managers who choose between contracts offered by an existing firm and a competitive venture capitalist.

Department dc:contributor.department

Massachusetts Institute of Technology. Department of Economics

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2003

Author dc:creator

• Amador, Manuel Andrés, 1976-

Advisor dc:contributor.advisor

• Daron Acemoglu and Olivier Blanchard.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/8041

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/8041