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Effects of credit limit on efficiency and welfare in a simple general equilibrium model

Author

Listed:
  • Ngoc‐Sang Pham

    (EM Normandie - École de Management de Normandie = EM Normandie Business School)

  • Hien Pham

    (Department of Economics, University of Rochester)

Abstract

We consider a simple general equilibrium model with two agents under the presence of financial market imperfections. Agents can borrow to realize their productive project up to the level of debt whose repayment reaches a fraction of the project's value (the so‐called credit limit ). After characterizing the whole set of equilibria, we investigate the connection between credit limit, (individual and social) welfare, and efficiency. We also compute the optimal credit limit which maximizes the social welfare function.

Suggested Citation

  • Ngoc‐Sang Pham & Hien Pham, 2019. "Effects of credit limit on efficiency and welfare in a simple general equilibrium model," Post-Print hal-05498312, HAL.
    • Handle: RePEc:hal:journl:hal-05498312
    DOI: 10.1111/ijet.12245
    as

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    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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