Resource title

Credit rationing, wealth inequality and allocation of talent

Resource image

image for OpenScout resource :: Credit rationing, wealth inequality and allocation of talent

Resource description

We study an economy where agents are heterogeneous in terms of observable wealth and unobservable talent. Adverse selection forces creditors to ask for collateral. We study the two-way interaction between rationing in the credit market and the wages offered in the labour market. Both pooling and separating credit contracts can be offered in equilibrium. The minimum wealth needed to obtain a separating contract is decreasing in the wage, whereas the minimum wealth needed for a pooling contract is increasing in the wage. If the first effect dominates, the derived labour demand can be upward sloping, resulting in the possibility of multiple equilibria.

Resource author

Resource publisher

Resource publish date

Resource language

en

Resource content type

application/pdf

Resource resource URL

http://eprints.lse.ac.uk/5922/1/credit_rationing%2C_wealth_inequality.pdf

Resource license