On the existence, efficiency and bubbles of a Ramsey equilibrium with endogenous labor supply and borrowing constraints

Robert Becker, Stefano Bosi, Cuong Le Van and Thomas Seegmuller
Additional contact information
Robert Becker: Indiana University
Stefano Bosi: THEMA, Department of Economics, University of Cergy-Pontoise
Cuong Le Van: CNRS, Exeter University, Paris School of Economics, VCREME
Thomas Seegmuller: CNRS, University Aix-Marseille

No 118, Working Papers from Development and Policies Research Center (DEPOCEN), Vietnam

Abstract: In this paper, we study the existence of an intertemporal equilibrium in a Ramsey model with heterogenous discounting, elastic labor supply and borrowing constraints. Applying a fixed-point argument by Gale and Mas-Colell (1975), we prove the existence of an equilibrium in a truncated bounded economy. This equilibrium is also an equilibrium of any unbounded economy with the same fundamentals. Then, we prove the existence of an equilibrium in an infinite-horizon economy as a limit of a sequence of truncated economies. On the one hand, our paper generalizes Becker et al. (1991) because of the elastic labor supply and, on the other hand, Bosi and Seegmuller (2010) because of a proof of global existence. Our methodology can be also applied to other Ramsey models with different market imperfections. The issue of bubbles existence and efficiency is raised at the end of the paper.

Keywords: bubbles; efficiency; Ramsey model; heterogeneous agents; endogenous labor supply; borrowing constraint (search for similar items in EconPapers)
JEL-codes: C62 D31 D91 G10 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2012
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Published in Economic Theory, 2015, 58(2), pages 329-353.

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https://doi.org/10.1007/s00199-014-0810-6 Published version, 2015

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