The purpose of this paper is to provide a long-run growth model linking growth to income distribution between lenders and borrowers in an environment where enforcement of loan contracts is imperfect. The equilibrium under costly verification implies a smaller growth rate, relative to the symmetric-information economy. Intragenerational transfer of income is shown to promote growth so long as the redistribution gives rise to an increase in net worth positions of borrowers.
ASJC Scopus subject areas
- Economics and Econometrics