44 Pages Posted: 13 Feb 2012 Last revised: 1 Dec 2012
Date Written: NOVEMBER 11, 2012
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: 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