IDEAS home Printed from
   My bibliography  Save this paper

Distributional Implications of Imperfect Capital Markets


  • Joon Koo Lee


The primary aim of this study is to analyze the impact of imperfections in capital markets on individuals' lifetime allocation plans and the resulting implications for income distribution. The model builds upon Samuelson's overlapping generation model with human capital and bequest motives playing central roles. The model developed here introduces a limit on the individual's ability to borrow. One of the most important consequences of this constraint is that human investment falls short of the level where its marginal return is equal to that of non-human investment. The comparative static results show that an individual who has been subject to the borrowing constraint would increase human investment unambiguously if he were allowed to borrow freely against future earnings. Discussions of the distributive implications of this result suggest that the elimination of the borrowing constraint has a potential of enhancing both intragenerational income equality and intergenerational mobility. The simulation results show that the elimination of the borrowing limit would bring about a significant improvement in income distribution without having an adverse effect on efficiency.

Suggested Citation

  • Joon Koo Lee, 1981. "Distributional Implications of Imperfect Capital Markets," NBER Working Papers 0663, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:0663
    Note: LS

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467-467.
    2. Lazear, Edward P, 1977. "Education: Consumption or Production?," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 569-597, June.
    3. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-963, December.
    4. Pryor, Frederic L, 1973. "Simulation of the Impact of Social and Economic Institutions on the Size Distribution of Income and Wealth," American Economic Review, American Economic Association, vol. 63(1), pages 50-72, March.
    5. Sahota, Gian Singh, 1978. "Theories of Personal Income Distribution: A Survey," Journal of Economic Literature, American Economic Association, vol. 16(1), pages 1-55, March.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    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:nbr:nberwo:0663. 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: () or (Joanne Lustig). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 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.