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Credit in a Random Matching Model with Private Information

Author

Listed:
  • S. Rao Aiyagari

    (University of Rochester)

  • Stephen D. Williamson

    (University of Iowa)

Abstract

We consider a random matching model where agents have complete access to each others' histories. Exchange is motivated by risk sharing given random unobservable incomes. There is capital accumulation and an endogenous interest rate. The key feature of this environment is that information is mobile across locations while there are frictions associated with transporting goods. Optimal allocations in the dynamics private information environment resemble real-world credit arrangements in that there are credit balance, credit limits, and installment payments. The steady state has the property that there is a limiting distribution of expected utility entitlements with mobility and a positive fraction of agents who are credit constrained. (Copyright: Elsevier)

Suggested Citation

  • S. Rao Aiyagari & Stephen D. Williamson, 1999. "Credit in a Random Matching Model with Private Information," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(1), pages 36-64, January.
    • Handle: RePEc:red:issued:v:2:y:1999:i:1:p:36-64
    DOI: 10.1006/redy.1998.0034
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    Cited by:

    1. Li, Shuyun May, 2013. "Optimal lending contracts with long run borrowing constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 964-983.
    2. Leo Ferraris, 2002. "Money and credit in random matching models of money," Working Papers in Public Economics 59, Department of Economics and Law, Sapienza University of Roma.
    3. Daniel, Sanches, 2011. "A dynamic model of unsecured credit," Journal of Economic Theory, Elsevier, vol. 146(5), pages 1941-1964, September.
    4. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.
    5. Koeppl, Thorsten & Monnet, Cyril & Temzelides, Ted, 2008. "A dynamic model of settlement," Journal of Economic Theory, Elsevier, vol. 142(1), pages 233-246, September.
    6. Ricardo de O. Cavalcanti & Andres Erosa & Ted Temzelides, 1999. "Private Money and Reserve Management in a Random-Matching Model," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 929-945, October.
    7. Stephen D. Williamson, 1998. "Payment systems with random matching and private information," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 551-572.
    8. Shuyun May Li, 2009. "Optimal Lending Contracts with Asymmetric Information and Two-sided Limited Commitment or Impatient Entrepreneur," Department of Economics - Working Papers Series 1065, The University of Melbourne.
    9. Yi Jin & Ted Temzelides, 2004. "On the Local Interaction of Money and Credit," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 143-156, January.
    10. Shuyun May Li, 2009. "Optimal Lending Contracts with Long Run Borrowing Constraints," Department of Economics - Working Papers Series 1084, The University of Melbourne.
    11. Sanches, Daniel & Williamson, Stephen, 2010. "Money and credit with limited commitment and theft," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1525-1549, July.
    12. Stephen Williamson, 2000. "The Research Agenda: Payment Systems and Private Money," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 2(1), November.
    13. Pavan, Marina, 2008. "Consumer durables and risky borrowing: The effects of bankruptcy protection," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1441-1456, November.
    14. Aiyagari, S. Rao & Williamson, Stephen D., 2000. "Money and Dynamic Credit Arrangements with Private Information," Journal of Economic Theory, Elsevier, vol. 91(2), pages 248-279, April.
    15. Sofía Bauducco & Alexandre Janiak, 2015. "On the welfare cost of bank concentration," Documentos de Trabajo 321, Centro de Economía Aplicada, Universidad de Chile.
    16. Stephen D. Williamson, 2002. "Private money and counterfeiting," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 37-57.
    17. Khan, Aubhik & Ravikumar, B., 2001. "Growth and risk-sharing with private information," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 499-521, June.
    18. Chao Gu & Fabrizio Mattesini & Randall Wright, 2016. "Money and Credit Redux," Econometrica, Econometric Society, vol. 84, pages 1-32, January.
    19. Latchezar Popov & B Ravikumar & Aubhik Khan, 2012. "Enduring Relationships in an Economy with Capital and Private Information," 2012 Meeting Papers 1056, Society for Economic Dynamics.
    20. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    21. Aiyagari, S. Rao & Williamson, Stephen, 1997. "Money, Credit, and Allocation Under Complete Dynamic Contracts and Incomplete Markets," Working Papers 97-20, University of Iowa, Department of Economics.
    22. Shuyun May Li, 2008. "Costly External Finance, Reallocation, and Aggregate Productivity," Department of Economics - Working Papers Series 1044, The University of Melbourne.
    23. Temzelides, Ted & Williamson, Stephen D., 2001. "Payments Systems Design in Deterministic and Private Information Environments," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 297-326, July.
    24. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
    25. Young Sik Kim, 2003. "Money, Growth and Risk Sharing with Private Information," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 276-299, April.

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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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