{"title":"Intergenerational redistribution with endogenous constraints to household debt","authors":"Ilya Eryzhenskiy","doi":"10.1016/j.jmateco.2024.103068","DOIUrl":null,"url":null,"abstract":"<div><div>I study decentralization of optimal allocations in an endowment overlapping-generations economy where young agents face endogenous borrowing constraints. Lenders constrain credit because of limited commitment of borrowers: those can declare bankruptcy and only lose their ability to make savings for retirement in the future. The social planner can use lump-sum transfers and government debt in order to decentralize optimal allocations of consumption goods. I show that policies using government debt decentralize a larger set of optimal allocations, as opposed to balanced-budget policies with the same number of instruments per period. In addition, government debt always rules out equilibria where the private credit market does not operate and can rule out equilibrium steady states with binding borrowing constraints. The results are explained by incentives for saving and debt repayment under limited commitment, so they do not hold under common specifications of exogenous debt constraints.</div></div>","PeriodicalId":50145,"journal":{"name":"Journal of Mathematical Economics","volume":"116 ","pages":"Article 103068"},"PeriodicalIF":1.0000,"publicationDate":"2024-11-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Mathematical Economics","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0304406824001289","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
I study decentralization of optimal allocations in an endowment overlapping-generations economy where young agents face endogenous borrowing constraints. Lenders constrain credit because of limited commitment of borrowers: those can declare bankruptcy and only lose their ability to make savings for retirement in the future. The social planner can use lump-sum transfers and government debt in order to decentralize optimal allocations of consumption goods. I show that policies using government debt decentralize a larger set of optimal allocations, as opposed to balanced-budget policies with the same number of instruments per period. In addition, government debt always rules out equilibria where the private credit market does not operate and can rule out equilibrium steady states with binding borrowing constraints. The results are explained by incentives for saving and debt repayment under limited commitment, so they do not hold under common specifications of exogenous debt constraints.
期刊介绍:
The primary objective of the Journal is to provide a forum for work in economic theory which expresses economic ideas using formal mathematical reasoning. For work to add to this primary objective, it is not sufficient that the mathematical reasoning be new and correct. The work must have real economic content. The economic ideas must be interesting and important. These ideas may pertain to any field of economics or any school of economic thought.