Internal finance and capital accumulation in a dynamic general equilibrium model with credits constraints

Henri Sneessens and Maria Lucia Stefani
Additional contact information
Maria Lucia Stefani: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)

No 1996032, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper uses a dynamic general equilibrium setup with overlapping generations to provide a better understanding of the causes and consequences of credit constraints resulting from asymmetric information and moral hazard. These constraints imply that the entrepreneur's access to credit is limited by the amount of internal funds available. In a general equilibrium setup, internal funds and the interest rate are endogenous. It is shown that credit constraints have large effects either by redistributing wealth or by changing the equilibrium capital stock, or both. Insofar as the interest rate elasticity of savings is close to zero, the effects on income distribution are likely to be much more important than the effects on output and investment. Even though Pareto improving policies do exist, they seem extremely difficult to implement in practice. Even in our simple setup with no borrower heterogeneity, simple transfers from unconstrained households to finance-constrained entrepreneurs may well fail to lead to Pareto superior outcomes and to eliminate the inefficiencies generated by capital market imperfections, even though they would have a positive impact on aggregate investment and output.

JEL-codes: E44 (search for similar items in EconPapers)
Pages: 31
Date: 1996-09-01
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.jstor.org/stable/40724128 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
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:ctl:louvre:1996032

Access Statistics for this paper

More papers in Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Sebastien SCHILLINGS ().