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

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  • Pham, Ngoc-Sang
  • Pham, Hien

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 (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

  • Pham, Ngoc-Sang & Pham, Hien, 2019. "Effects of credit limit on efficiency and welfare in a simple general equilibrium model," MPRA Paper 97927, University Library of Munich, Germany, revised 05 Aug 2019.
    • Handle: RePEc:pra:mprapa:97927
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    References listed on IDEAS

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    5. Bosi, Stefano & Van, Cuong Le & Pham, Ngoc-Sang, 2018. "Intertemporal equilibrium with heterogeneous agents, endogenous dividends and collateral constraints," Journal of Mathematical Economics, Elsevier, vol. 76(C), pages 1-20.
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    Cited by:

    1. Ngoc-Sang Pham, 2023. "Some Lectures on Macroeconomics," Working Papers hal-04366349, HAL.
    2. Ngoc-Sang Pham, 2022. "Impacts of (individual and aggregate) productivity and credit shocks on equilibrium aggregate production," Working Papers halshs-03686284, HAL.
    3. Pham, Ngoc-Sang, 2018. "Credit limits and heterogeneity in general equilibrium models with a finite number of agents," MPRA Paper 88736, University Library of Munich, Germany.

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    More about this item

    Keywords

    General equilibrium; credit limit; welfare; efficiency;
    All these keywords.

    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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