Endogenous borrowing constraints and wealth inequality

  title={Endogenous borrowing constraints and wealth inequality},
  author={Joydeep Bhattacharya and Xue Qiao},
This paper studies the evolution of wealth inequality in an economy with endogenous borrowing constraints. In the model economy, agents need to borrow to finance human capital investments but cannot commit to repaying their loans. Creditors can punish defaulters by banishing them permanently from the credit market. In equilibrium, loan default is prevented by imposing a borrowing limit tied to the borrower's inheritance. The heterogeneity in inheritances translates into heterogeneity in the… CONTINUE READING

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