Unemployment, Credit Rationing, and Capital Accumulation: A Tale of Two Frictions

Joydeep Bhattacharya () and Caroline Marie Betts

Staff General Research Papers from Iowa State University, Department of Economics

Abstract: This paper develops a model in which two information frictions are embedded into an otherwise conventional neoclassical growth model; an adverse selection problem in the labor market and a costly state verification problem in the credit market. The former allows equilibrium unemployment to arise endogenously while the latter is responsible for equilibrium credit rationing. This structure is used to investigate a theoretical link between the level of unemployment and the extent of credit rationing (and capital formation). The presence of the labor market friction is enough to generate scope for multiple steady state equilibria. The model also generates a large class of endogenous cyclical and chaotic dynamical equilibria. Development trap phenomena may also appear.

JEL-codes: E0 (search for similar items in EconPapers)
Date: 2002-03-01

Published in Economic Theory, 1998, Vol. 12, pp. 462-489.

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Unemployment, credit rationing, and capital accumulation: a tale of two frictions (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:5104

Access Statistics for this paper

More papers in Staff General Research Papers from Iowa State University, Department of Economics
Address: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Contact information at EDIRC.
Series data maintained by Stephanie Bridges ().