On borrowing limits and welfare
We 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.
|Date of creation:||Oct 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Ramon Trias Fargas, 25-27, 08005 Barcelona|
Phone: +34 93 542-1222
Fax: +34 93 542-1223
Web page: http://www.barcelonagse.eu
More information through EDIRC
References listed on IDEAS
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.:
- Julio Davila & Jay H. Hong & Per Krusell & José-Victor Rios Rull, 2005.
"Constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks,"
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
- 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, 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," Cahiers de la Maison des Sciences Economiques b05066, Université Panthéon-Sorbonne (Paris 1).
- 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 2463, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Julio Davila & J.H. Jong & Per Krusell & José-Victor Rios Rull, 2012. "Constrainted efficiency in the neoclassical growth model with uninsurable idiosyncratic skocks," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00751900, HAL.
- Igor Livshits & James MacGee & Michele Tertilt, 2003.
"Consumer bankruptcy: a fresh start,"
617, Federal Reserve Bank of Minneapolis.
- Ábrahám, Árpád & Cárceles-Poveda, Eva, 2010.
"Endogenous trading constraints with incomplete asset markets,"
Journal of Economic Theory,
Elsevier, vol. 145(3), pages 974-1004, May.
- Eva Carceles Poveda & Arpad Abraham, 2004. "Endogenous Trading Constraints with Incomplete Asset Markets," 2004 Meeting Papers 667, Society for Economic Dynamics.
- S. Rao Aiyagari, 1993.
"Uninsured idiosyncratic risk and aggregate saving,"
502, Federal Reserve Bank of Minneapolis.
- Athreya, Kartik B., 2002. "Welfare implications of the Bankruptcy Reform Act of 1999," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1567-1595, November.
- Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October.
- Huggett, Mark & Ospina, Sandra, 2001. "Aggregate precautionary savings: when is the third derivative irrelevant?," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 373-396, October.
- Sangeeta Pratap & Silvio Rendon, 2003.
"Firm Investment in Imperfect Capital Markets: A Structural Estimation,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 513-545, July.
- Sangeeta Pratap & Silvio Rendón, 1996. "Firm investment in imperfect capital markets: A structural estimation," Economics Working Papers 274, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 1998.
- Ljungqvist, Lars, 1993. "Economic underdevelopment : The case of a missing market for human capital," Journal of Development Economics, Elsevier, vol. 40(2), pages 219-239, April.
- Huggett, Mark, 1997. "The one-sector growth model with idiosyncratic shocks: Steady states and dynamics," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 385-403, August.
- Eduardo L. Giménez, 2001.
"Complete and Incomplete Markets with Short-Sale Constraints,"
Tinbergen Institute Discussion Papers
01-034/1, Tinbergen Institute.
- Eduardo L. Giménez, 2003. "Complete and incomplete markets with short-sale constraints," Economic Theory, Society for the Advancement of Economic Theory (SAET), vol. 21(1), pages 195-204, 01.
- Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
When requesting a correction, please mention this item's handle: RePEc:bge:wpaper:401. 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: (Bruno Guallar)
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.