On borrowing limits and welfare
AbstractWe study the effect of borrowing limits on welfare in several versions of exchange and production economies. There is a "quantity" effect of a larger borrowing limit which is beneficial for liquidity constrained agents, but essentially irrelevant otherwise. There is also a ``price effect" which tends to increase the interest rate so that lenders are better off and borrowers are worse off. The combination of these effects produces that aggregate welfare in equilibrium (or ex ante welfare) displays an inverted U-shape as a function of the borrowing limit. In infinite horizon economies with incomplete markets we find a sizable "middle class" of not liquidity constrained but indebted agents that observes small gains, or even loses, after the borrowing limit is enlarged. (Copyright: Elsevier)
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 14 (2011)
Issue (Month): 2 (April)
Contact details of provider:
Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
Web page: http://www.EconomicDynamics.org/review.htm
More information through EDIRC
Other versions of this item:
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael Haliassos & Christis Hassapis, 1998. "Borrowing Constraints, Portfolio Choice, and Precautionary," Macroeconomics, EconWPA 9809008, EconWPA.
- DAVILA, Julio & HONG, Jay H. & KRUSELL, Per & RIOS-RULL, José-Victor, .
"Constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks,"
CORE Discussion Papers RP, UniversitÃ© catholique de Louvain, Center for Operations Research and Econometrics (CORE)
-2463, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Julio Dávila & Jay H. Hong & Per Krusell & José‐Víctor Ríos‐Rull, 2012. "Constrained Efficiency in the Neoclassical Growth Model With Uninsurable Idiosyncratic Shocks," Econometrica, Econometric Society, Econometric Society, vol. 80(6), pages 2431-2467, November.
- Julio Davila & Jay H. Hong & Per Krusell & Jose-Victor Rios-Rull, 2005. "Constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks," PIER Working Paper Archive 05-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Julio Davila & Jay H. Hong & Per Krusell & José-Victor Rios Rull, 2005. "Constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers), HAL halshs-00196183, HAL.
- Julio Davila & Jay H. Hong & Per Krusell & José-Victor Rios Rull, 2005. "Constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks," Cahiers de la Maison des Sciences Economiques, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1) b05066, Université Panthéon-Sorbonne (Paris 1).
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2002.
"A Quantitative Theory of Unsecured Consumer Credit with Risk of Default,"
Centro de AltiÂsimos Estudios RiÂos PeÂ©rez(CAERP), Centro de Altisimos Estudios Rios Perez (CAERP)
2, Centro de Altisimos Estudios Rios Perez (CAERP).
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, Econometric Society, vol. 75(6), pages 1525-1589, November.
- Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
- repec:hal:journl:halshs-00196183 is not listed on IDEAS
- Paxson, Christina, 1990. "Borrowing Constraints and Portfolio Choice," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 535-43, May.
- Kartik B. Athreya & Xuan S. Tam & Eric R. Young, 2012. "Debt default and the insurance of labor income risks," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue 4Q, pages 255-307.
- Marian Leimbach & Baumstark, Lavinia, 2011. "Intertemporal trade and the Integrated Assessment of climate change mitigation policies," EcoMod2011, EcoMod 3036, EcoMod.
- Makoto Nakajima, 2011.
"Rising indebtedness and temptation: a welfare analysis,"
11-39, Federal Reserve Bank of Philadelphia.
- Makoto Nakajima, 2012. "Rising indebtedness and temptation: A welfare analysis," Quantitative Economics, Econometric Society, Econometric Society, vol. 3(2), pages 257-288, 07.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.