2. Indexed debt contracts in lieu of insurance. Again reconsider the small-country model of section 6.1.1, where consumption takes place only in period 2. Now, instead of being able to write insurance contracts, the country is only able to borrow in the form of equity or output-indexed debt contracts. In particular, it borrows D in period 1 and makes nonnegative payments P

(e) 0 in period 2 subject to the zero-profit condition N T(E)P()=(1+r)D and the incentive compatibility constraint P(6) n + (1+r)D + ,]. Vi.