Credit in a Random Matching Model with Private Information
Univ. of Iowa Dept. of Economics WP #97-03
35 Pages Posted: 28 Jul 1997
Date Written: February 1997
Abstract
We consider a random matching model without monetary exchange where agents have complete access to each others' histories. Exchange is motivated by risk sharing given random unobservable incomes. There is capital accumulation and an endogenous interest rate. The key feature of this environment is that information is mobile across locations even while goods are not. Optimal allocations in the dynamic private information environment resemble real-world credit arrangements in that there are credit balances, credit limits, and installment payments. The steady-state has the property that there is a limiting distribution of expected utility entitlements with mobility and a positive fraction of agents who are credit constrained.
Note: S. Rao Aiyagari, deceased, was affiliated with the University of Rochester at the time this abstract was written.
JEL Classification: D82, D83
Suggested Citation: Suggested Citation
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