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

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  • Ngoc‐Sang Pham
  • Hien Pham

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, 2021. "Effects of credit limit on efficiency and welfare in a simple general equilibrium model," International Journal of Economic Theory, The International Society for Economic Theory, vol. 17(4), pages 446-470, December.
    • Handle: RePEc:bla:ijethy:v:17:y:2021:i:4:p:446-470
    DOI: 10.1111/ijet.12245
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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

    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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