Constrained-Efficient Capital Reallocation

Andrea Lanteri and Adriano Rampini

No 28384, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We characterize efficiency in an equilibrium model of investment and capital reallocation with heterogeneous firms facing collateral constraints. The model features two types of pecuniary externalities: collateral externalities, because the resale price of capital affects collateral constraints, and distributive externalities, because buyers of old capital are more financially constrained than sellers, consistent with empirical evidence. We prove that the stationary-equilibrium price of old capital is inefficiently high, because the distributive pecuniary externality exceeds the collateral externality, by a factor of two in our calibrated model. New investment reduces the future price of old capital, providing a rationale for new-investment subsidies.

JEL-codes: D51 E22 E44 G31 H21 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-dge and nep-mac
Note: CF EFG PE PR
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Published as Andrea Lanteri & Adriano A. Rampini, 2023. "Constrained-Efficient Capital Reallocation," American Economic Review, vol 113(2), pages 354-395.

Downloads: (external link)
http://www.nber.org/papers/w28384.pdf (application/pdf)

Related works:
Journal Article: Constrained-Efficient Capital Reallocation (2023)
Working Paper: Constrained-Efficient Capital Reallocation (2022)
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:nbr:nberwo:28384

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w28384

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().