On Existence, Efficiency and Bubbles of Ramsey Equilibrium with Borrowing Constraints

44 Pages Posted: 13 Feb 2012 Last revised: 1 Dec 2012

Robert A. Becker

Indiana University Bloomington - Department of Economics

Stefano Bosi

Université d'Évry

Cuong Le Van

Université Paris I Panthéon-Sorbonne

Thomas Seegmuller

Aix-Marseille University - Aix-Marseille School of Economics

Date Written: NOVEMBER 11, 2012

Abstract

We address the fundamental issues of existence and efficiency of an equilibrium in a Ramsey model with many agents, where agents have heterogeneous discounting, elastic labor supply and face borrowing constraints.

The existence of rational bubbles is also tackled. In the first part, we prove the equilibrium existence in a truncated bounded economy through a fixed-point argument by Gale and Mas-Colell (1975). This equilibrium is also an equilibrium of any unbounded economy with the same fundamentals. The proof of existence is eventually given for an infinite horizon economy as a limit of a sequence of truncated economies. Our general approach is suitable for applications to other models with different market imperfections. In the second part, we show the impossibility of bubbles in a productive economy and we give sufficient conditions for equilibrium efficiency.

Keywords: Ramsey equilibrium, existence, efficiency, bubbles, heterogeneous agents, endogenous labor supply, borrowing constraint

JEL Classification: C62, D31, D91, G10

Suggested Citation

Becker, Robert A. and Bosi, Stefano and Le Van, Cuong and Seegmuller, Thomas, On Existence, Efficiency and Bubbles of Ramsey Equilibrium with Borrowing Constraints (NOVEMBER 11, 2012). Available at SSRN: https://ssrn.com/abstract=2003000 or http://dx.doi.org/10.2139/ssrn.2003000

Robert A. Becker (Contact Author)

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Stefano Bosi

Université d'Évry ( email )

F-91025 Evry Cedex
France
(33) 1 69 47 70 47 (Phone)
(33) 1 69 47 70 50 (Fax)

Cuong Le Van

Université Paris I Panthéon-Sorbonne ( email )

12, place du Panthéon
Paris, IL
France

Thomas Seegmuller

Aix-Marseille University - Aix-Marseille School of Economics ( email )

Centre de la vieille Charité
2 rue de la Charité
13236 Marseille
France

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