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

Ngoc-Sang Pham and Hien Pham

MPRA Paper from University Library of Munich, Germany

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.

Keywords: General equilibrium; credit limit; welfare; efficiency (search for similar items in EconPapers)
JEL-codes: D5 E44 G10 (search for similar items in EconPapers)
Date: 2019-08-05, Revised 2019-08-05
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Effects of credit limit on efficiency and welfare in a simple general equilibrium model (2021)
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