IDEAS home Printed from https://ideas.repec.org/a/spr/joecth/v12y1998i3p489-517.html
   My bibliography  Save this article

Unemployment, credit rationing, and capital accumulation: a tale of two frictions

Author

Listed:
  • Caroline Betts

    (Department of Economics, University of Southern California, Los Angeles, CA 90089, USA)

  • Joydeep Bhattacharya

    () (Department of Economics, State University of New York at Buffalo, Buffalo, NY 14260, USA)

Abstract

This paper develops a model in which two information frictions are embedded into an otherwise conventional neoclassical growth model; an adverse selection problem in the labor market and a costly state verification problem in the credit market. The former allows equilibrium unemployment to arise endogenously while the latter is responsible for equilibrium credit rationing. This structure is used to investigate a theoretical link between the level of unemployment and the extent of credit rationing (and capital formation). The presence of the labor market friction is enough to generate scope for multiple steady state equilibria. The model also generates a large class of endogenous cyclical and chaotic dynamical equilibria. Development trap phenomena may also appear.

Suggested Citation

  • Caroline Betts & Joydeep Bhattacharya, 1998. "Unemployment, credit rationing, and capital accumulation: a tale of two frictions," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(3), pages 489-517.
  • Handle: RePEc:spr:joecth:v:12:y:1998:i:3:p:489-517
    Note: Received: April 10, 1998; revised version: May 20, 1998
    as

    Download full text from publisher

    File URL: http://link.springer.de/link/service/journals/00199/papers/8012003/80120489.pdf
    Download Restriction: Access to the full text of the articles in this series is restricted

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Noritaka Kudoh, 2007. "Unemployment Policies In An Economy With Adverse Selection," Bulletin of Economic Research, Wiley Blackwell, vol. 59(2), pages 179-196, April.
    3. Daitoh, Ichiroh, 2003. "Financial liberalization, urban unemployment and welfare: some implications of the artificial low interest rate and the high wage rate policies in LDCs," Journal of Development Economics, Elsevier, vol. 72(1), pages 163-179, October.

    More about this item

    Keywords

    Unemployment · Credit rationing · Cycles · Chaos.;

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:12:y:1998:i:3:p:489-517. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.