 Unemployment, Credit Rationing, and Capital Accumulation: A Tale of Two FrictionsJoydeep Bhattacharya and Caroline Betts Staff General Research Papers Archive 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. Keywords: unemployment; credit rationing; cycles; chaos (search for similar items in EconPapers) Published in Economic Theory, October 1998, vol. 12 no. 3, pp. 489-517 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:5104 Access Statistics for this paper More papers in Staff General Research Papers Archive from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC. |
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