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We study the existence of equilibrium and rational bubbles in a Ramsey model with heterogeneous agents, borrowing constraints and endogenous labor. Applying Kakutani's fixed-point theorem, we prove the existence of equilibrium in a time-truncated bounded economy. A common argument shows this solution to be an equilibrium for any unbounded economy with the same fundamentals. Taking the limit of a sequence of truncated economies, we eventually obtain the existence of equilibrium in the Ramsey model. In the second part of the paper, we address the issue of rational bubbles and we prove that they never occur in a productive economy à la Ramsey. [ABSTRACT FROM AUTHOR]

Under credit market imperfections, the marginal product of capital may not be equalized, resulting in misallocation and lower output. Preferential interest rate policies are often used to remedy the problem. This paper constructs a general equilibrium model with heterogeneous agents, imperfect enforcement and costly intermediation. Occupational choice and firm size are determined endogenously by an agent's type (ability and net wealth) and credit market frictions. The credit program subsidizes the interest rate on loans and requires a fixed application cost, which might be null. We find that the credit subsidy policy has no significant effect on output, but it may have negative effects on wages. The program is largely a transfer from households to a small group of entrepreneurs with minor aggregate effects. We also provide estimates of the effects of reducing the frictions directly. When comparing differences in US output per capita in a baseline case to simulations with counterfactually high frictions, intermediation costs and enforcement explain about 20-25 % of the output gap. We include a transition analysis. [ABSTRACT FROM AUTHOR]

This paper studies optimal education policies under endogenous borrowing constraints in a standard life-cycle model. In a closed economy, a policy that appropriately bundles an education subsidy with an old-age pension can restore the complete market allocation. Such a policy also removes persistent indeterminacies and endogenous fluctuations that exist in its absence. In a small open economy, a similar policy may restore the complete market allocation for a wide range of parameters, a range much wider than previously believed. These results broaden the rationale for a two-armed welfare state (education and pension) to a large class of economies. [ABSTRACT FROM AUTHOR]

Summary. The purpose of this paper is to explore the implications of private money issue for the effects of monetary policy, for optimal policy, and for the role of fiat money. A locational model is constructed which gives an explicit account of the role for money and credit, and for limited financial market participation. When private money issue is prohibited, there is a liquidity effect as the result of a money injection from the central bank, but this effect goes away when private money is permitted. Private money issue changes dramatically the nature of optimal monetary policy. With private money, fiat currency is no longer used in transactions involving goods, but currency and central bank reserves play an important part in the clearing and settlement of private money returned for redemption. [ABSTRACT FROM AUTHOR]

Summary. 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. [ABSTRACT FROM AUTHOR]

We develop a duality approach to study an individual's optimal consumption and portfolio policy when the individual has limited opportunities to borrow against future labor income and cannot totally insure the risk of income fluctuations. The individual's intertemporal consumption and portfolio problem is cast in a continuous-time setting under uncertainty. We transform the individual's intertemporal problem into a dual shadow prices problem that solves the shadow prices for the individual's optimal consumption plan or equivalently the individual's intertemporal marginal rates of substitution. We show that the shadow prices process can be expressed as a product of a martingale and a decreasing process (normalized by the bond price). The existence of an optimal solution to the individual's intertemporal consumption and portfolio problem is established via duality. The duality approach also allows us to characterize in a sample way the individual's optimal consumption and portfolio policy in the presence of labor income and borrowing constraints. Equilibrium implications of borrowing constraints on asset prices are also discussed in the paper. [ABSTRACT FROM AUTHOR]

Not-too-tight debt limits are endogenous restrictions on debt that prevent agents from defaulting and opting for a specified continuation utility, while allowing for maximal credit expansion. For an agent facing some fixed prices for the Arrow securities, we prove that discounted not-too-tight debt limits must differ by a martingale. [ABSTRACT FROM AUTHOR]

We introduce and justify a taxonomy for the structure of markets and minimal institutions which appear in constructing minimally complex trading structures to perform the functions of price formation, settlement and payments. Each structure is presented as a playable strategic market game and is examined for its efficiency, the number of degrees of freedom and the symmetry properties of the structure. [ABSTRACT FROM AUTHOR]

We model credit contracting and bidding in a first-price sealed-bid auction when bidder valuation and wealth are private information. An efficient separating equilibrium exists only if the wealth levels of both bidder types are sufficiently different. If not. high-valuation bidders signal by borrowing more and using less of their wealth - this is inefficient as wealth is a cheaper source of funds. An increase in the amount of borrowing required to signal does not necessarily decrease seller expected revenue. In contrast to separating equilibria, high-valuation bidders adopt pure strategy bids in pooling equilibria. Conditions are identified under which the lower bound on winning bids is higher in pooling than separating equilibria. [ABSTRACT FROM AUTHOR]