Unemployment, credit rationing, and capital accumulation: a tale of two frictions

Caroline Betts and Joydeep Bhattacharya

Economic Theory, 1998, vol. 12, issue 3, 489-517

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.

Keywords: Unemployment; ·; Credit; rationing; ·; Cycles; ·; Chaos. (search for similar items in EconPapers)
JEL-codes: E13 J2 J6 (search for similar items in EconPapers)
Date: 1998-10-13
Note: Received: April 10, 1998; revised version: May 20, 1998
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://link.springer.de/link/service/journals/00199/papers/8012003/80120489.pdf (application/pdf)
Access to the full text of the articles in this series is restricted

Related works:
Working Paper: 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: https://EconPapers.repec.org/RePEc:spr:joecth:v:12:y:1998:i:3:p:489-517

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().