We analyze the role of foreign aid when enforcement of contracts is inadequate and underinvestment occurs as a result of this market failure.
We focus on the implications of this "pure enforceability problem," where underinvestment occurs because of an unwillingness, rather than an inability, to pay.
These subintervals correspond to the three possible equilibria for investment flows: autarky, underinvestment, and unconstrained optimal investment.
Obviously, this situation will typically lead to underinvestment in the children's human capital.
However, it seems plausible that it is a failure of public policy causing this underinvestment.
Such a policy may still be associated with underinvestment in education if parents do not take the benefits accruing to their children fully into account.
The result is significant underinvestment in village-level biomass stock, which is found to be an important factor of agricultural production.
The burden of fifteen years of underinvestment and restrictions on consumption directed capital towards increased capacity, which became the faster track to normalisation and expansion.
