Evidently, autarky is not an absorbing state for the agent in this regime at these parameter values.
Surplus for each regime when promised utilities are truncated at autarky.
The proof is immediate from equations (14), the autarky version of (9), and their steady state equivalents.
In autarky the agent borrows nothing, consumes the output, and chooses effort to maximize expected contemporaneous utility.
One flaw of using flows lies on the fact that zero capital flows is a necessary but not sufficient condition for financial autarky.
The smallest incentive-compatible promised utility in this regime is the present discounted value of remaining in autarky permanently.
The terminal condition incorporates the fact that once discovered, a defecting banker is punished with autarky forever.
Most results are displayed with the utility range truncated at autarky (the minimum promised utility in the pure-debt regime).
