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On the existence, efficiency and bubbles of a Ramsey equilibrium with endogenous labor supply and borrowing constraints

Author

Listed:
  • Robert Becker

    (Indiana University)

  • Stefano Bosi

    (THEMA, Department of Economics, University of Cergy-Pontoise)

  • Cuong Le Van

    (CNRS, Exeter University, Paris School of Economics, VCREME)

  • Thomas Seegmuller

    (CNRS, University Aix-Marseille)

Abstract

In this paper, we study the existence of an intertemporal equilibrium in a Ramsey model with heterogenous discounting, elastic labor supply and borrowing constraints. Applying a fixed-point argument by Gale and Mas-Colell (1975), we prove the existence of an equilibrium in a truncated bounded economy. This equilibrium is also an equilibrium of any unbounded economy with the same fundamentals. Then, we prove the existence of an equilibrium in an infinite-horizon economy as a limit of a sequence of truncated economies. On the one hand, our paper generalizes Becker et al. (1991) because of the elastic labor supply and, on the other hand, Bosi and Seegmuller (2010) because of a proof of global existence. Our methodology can be also applied to other Ramsey models with different market imperfections. The issue of bubbles existence and efficiency is raised at the end of the paper.

Suggested Citation

  • Robert Becker & Stefano Bosi & Cuong Le Van & Thomas Seegmuller, 2012. "On the existence, efficiency and bubbles of a Ramsey equilibrium with endogenous labor supply and borrowing constraints," Working Papers 118, Development and Policies Research Center (DEPOCEN), Vietnam.
    • Handle: RePEc:dpc:wpaper:0212
    DOI: 10.1007/s00199-014-0810-6
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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
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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