Finance and Economics Discussion Series (FEDS)
January 1999
Asset Pooling, Credit Rationing, and Growth
Abstract:
I study the effect of improved financial intermediation on the process of capital accumulation by augmenting a standard model with a general contract space. With the extra contracts, intermediaries endogenously begin using ROSCAs, or Rotating Savings and Credit Associations. These contracts allow poor agents, previously credit rationed, access to credit. As a result, agents work harder and total economy-wide output increases; however, these gains come at the cost of increased inequality. I provide sufficient conditions for the allocations to be Pareto optimal, and for there to be a unique invariant distribution of wealth. I provide an analytic characterization of a simple model and use numerical techniques to study more general models.
Full paper (608 KB Postscript)Keywords: Asset pooling, credit rationing, roscas, growth
PDF: Full Paper
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