A Simple Model of Restricted Participation with Real Assets
نویسندگان
چکیده
We analyze the effects of restricted participation in a two-period general equilibrium model with uncertainty in the second period and real assets. Similar to certain arrangements in the markets for bank loans, household borrowing is restricted by a household-specific lower bound on wealth in all states of uncertainty in the final period. After establishing that, generically in the set of the economies, equilibria exist and are finite and regular, we show that equilibria are generically suboptimal. Finally, we provide an interesting example demonstrating that the equilibrium allocations can be Pareto improved through a tightening of the participation constraints.
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