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Computing general equilibrium models with occupational choice and financial frictions

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  • Antunes, António
  • Cavalcanti, Tiago
  • Villamil, Anne

Abstract

This paper establishes the existence of a stationary equilibrium and a procedure to compute solutions to a class of dynamic general equilibrium models with two important features. First, occupational choice is determined endogenously as a function of heterogeneous agent type, which is defined by an agent's managerial ability and capital bequest. Heterogeneous ability is exogenous and independent across generations. In contrast, bequests link generations and the distribution of bequests evolves endogenously. Second, there is a financial market for capital loans with a deadweight intermediation cost and a repayment incentive constraint. The incentive constraint induces a non-convexity. The paper proves that the competitive equilibrium can be characterized by the bequest distribution and factor prices, and uses the monotone mixing condition to ensure that the stationary bequest distribution that arises from the agent's optimal behavior across generations exists and is unique. The paper next constructs a direct, non-parametric approach to compute the stationary solution. The method reduces the domain of the policy function, thus reducing the computational complexity of the problem.

Suggested Citation

  • Antunes, António & Cavalcanti, Tiago & Villamil, Anne, 2008. "Computing general equilibrium models with occupational choice and financial frictions," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 553-568, July.
  • Handle: RePEc:eee:mateco:v:44:y:2008:i:7-8:p:553-568
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    1. Antunes, Antonio R. & Cavalcanti, Tiago V. de V., 2007. "Start up costs, limited enforcement, and the hidden economy," European Economic Review, Elsevier, vol. 51(1), pages 203-224, January.
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    9. Antonio Antunes & Tiago Cavalcanti & Anne Villamil, 2006. "The Effect of Financial Repression & Enforcement on Entrepreneurship and Economic Development," Development Economics Working Papers 21816, East Asian Bureau of Economic Research.
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    13. Amaral, Pedro S. & Quintin, Erwan, 2006. "A competitive model of the informal sector," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1541-1553, October.
    14. Krasa, Stefan & Sharma, Tridib & Villamil, Anne P., 2005. "Debt contracts and cooperative improvements," Journal of Mathematical Economics, Elsevier, vol. 41(7), pages 857-874, November.
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    16. Antunes, António & Cavalcanti, Tiago & Villamil, Anne, 2008. "The effect of financial repression and enforcement on entrepreneurship and economic development," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 278-297, March.
    17. Stefan Krasa & Anne P. Villamil, 2000. "Optimal Contracts when Enforcement Is a Decision Variable," Econometrica, Econometric Society, vol. 68(1), pages 119-134, January.
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    Cited by:

    1. Takashi Kamihigashi & John Stachurski, 2011. "Existence, Stability and Computation of Stationary Distributions: An Extension of the Hopenhayn-Prescott Theorem," Discussion Paper Series DP2011-32, Research Institute for Economics & Business Administration, Kobe University.
    2. Takashi Kamihigashi & John Stachurski, 2011. "Stability of Stationary Distributions in Monotone Economies," ANU Working Papers in Economics and Econometrics 2011-561, Australian National University, College of Business and Economics, School of Economics.
    3. Antonio Antunes & Tiago Cavalcanti & Anne Villamil, 2006. "The Effect of Financial Repression & Enforcement on Entrepreneurship and Economic Development," Development Economics Working Papers 21816, East Asian Bureau of Economic Research.
    4. Khraiche, Maroula & Boudreau, James, 2020. "Can lower remittance costs improve human capital accumulation in Africa?," Journal of Policy Modeling, Elsevier, vol. 42(5), pages 1000-1021.
    5. António Antunes & Tiago Cavalcanti & Anne Villamil, 2015. "The effects of credit subsidies on development," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(1), pages 1-30, January.
    6. Gergely Horváth & Rui Zhang, 2022. "Ethnic entrepreneurship, assimilation, and integration policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(4), pages 781-816, August.
    7. Liu, Fan, 2018. "Macroeconomic effects of microsavings programs for the unbanked," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 75-99.
    8. David Chivers & Zhigang Feng & Anne Villamil, 2017. "Employment-based Health Insurance and Misallocation: Implications for the Macroeconomy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 125-149, January.
    9. Merlin, Giovanni Tondin, 2018. "Credit subsidies: bad idea or misuse?," Textos para discussão 483, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    10. Merlin, Giovanni Tondin & Teles, Vladimir Kuhl, 2014. "Financial frictions, informality and income inequality," Textos para discussão 374, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    11. Takashi Kamihigashi & John Stachurski, 2012. "Existence, Uniqueness and Stability of Stationary Distributions: An Extension of the Hopenhayn-Prescott Theorem," Discussion Paper Series DP2012-27, Research Institute for Economics & Business Administration, Kobe University.
    12. Joanna Georgios Alexopoulos & Anne Villamil, 2014. "The Effects Of Frictions In The Labormarket On Entrepreneurship And Economic Development," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 045, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

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    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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