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Ramsey Equilibrium with Liberal Borrowing

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  • Robert A. Becker
  • Kirill Borissov
  • Ram Sewak Dubey

Abstract

This paper considers a multi-agent one-sector Ramsey equilibrium growth model with borrowing constraints. The extreme borrowing constraint used in the classical version of the model, surveyed in Becker (2006), and the limited form of borrowing constraint examined in Borissov and Dubey (2015) are relaxed to allow more liberal borrowing by the households. A perfect foresight equilibrium is shown to exist in this economy. Each equilibrium's aggregate capital stock sequence is eventually monotonic and is shown to converge to the unique stationary equilibrium capital stock and the impatient households are eventually in the maximum borrowing state and remain so for all subsequent periods, whereas the most patient household eventually owns the entire capital stock and the other households debts. This convergence result is unlike the possibility of non-convergent equilibrium capital stock sequences in the model with no borrowing and like the equilibrium outcomes in the model with limited borrowing. Here, the convergence theorem is independent of the production technology employed by the firms. As the borrowing regime is progressively liberalized, the Gini coefficient of steady state wealth distribution increases.

Suggested Citation

  • Robert A. Becker & Kirill Borissov & Ram Sewak Dubey, 2015. "Ramsey Equilibrium with Liberal Borrowing," EUSP Department of Economics Working Paper Series Ec-02/15, European University at St. Petersburg, Department of Economics.
  • Handle: RePEc:eus:wpaper:ec0215
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    References listed on IDEAS

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    Cited by:

    1. Boucekkine, Raouf & Nishimura, Kazuo & Venditti, Alain, 2015. "Introduction to financial frictions and debt constraints," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 271-275.
    2. Robert A. Becker & Kirill Borissov & Ram Sewak Dubey, 2015. "Ramsey Equilibrium with Liberal Borrowing," EUSP Department of Economics Working Paper Series Ec-02/15, European University at St. Petersburg, Department of Economics.
    3. Robert A. Becker & Kirill Borissov & Ram Sewak Dubey, 2015. "Ramsey Equilibrium with Liberal Borrowing," Caepr Working Papers 2015-003, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    4. Becker, Robert A. & Borissov, Kirill & Dubey, Ram Sewak, 2015. "Ramsey equilibrium with liberal borrowing," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 296-304.

    More about this item

    Keywords

    convergence; existence; Gini coefficient; growth; heterogeneous agent; liberal borrowing; turnpike property;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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