Distributional Implications of Imperfect Capital Markets / Joon Koo Lee.

By:

Lee, Joon Koo

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w0663.Publication details: Cambridge, Mass. National Bureau of Economic Research 1981.Description: 1 online resource: illustrations (black and white)Subject(s):

J - Labor and Demographic Economics

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: The primary aim of this study is to analyze the impact of imperfections in capital markets on individuals' lifetime allocation plans and the resulting implications for income distribution. The model builds upon Samuelson's overlapping generation model with human capital and bequest motives playing central roles. The model developed here introduces a limit on the individual's ability to borrow. One of the most important consequences of this constraint is that human investment falls short of the level where its marginal return is equal to that of non-human investment. The comparative static results show that an individual who has been subject to the borrowing constraint would increase human investment unambiguously if he were allowed to borrow freely against future earnings. Discussions of the distributive implications of this result suggest that the elimination of the borrowing constraint has a potential of enhancing both intragenerational income equality and intergenerational mobility. The simulation results show that the elimination of the borrowing limit would bring about a significant improvement in income distribution without having an adverse effect on efficiency.

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w0663 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

April 1981.

The primary aim of this study is to analyze the impact of imperfections in capital markets on individuals' lifetime allocation plans and the resulting implications for income distribution. The model builds upon Samuelson's overlapping generation model with human capital and bequest motives playing central roles. The model developed here introduces a limit on the individual's ability to borrow. One of the most important consequences of this constraint is that human investment falls short of the level where its marginal return is equal to that of non-human investment. The comparative static results show that an individual who has been subject to the borrowing constraint would increase human investment unambiguously if he were allowed to borrow freely against future earnings. Discussions of the distributive implications of this result suggest that the elimination of the borrowing constraint has a potential of enhancing both intragenerational income equality and intergenerational mobility. The simulation results show that the elimination of the borrowing limit would bring about a significant improvement in income distribution without having an adverse effect on efficiency.