Gunes Gokmen
Biträdande universitetslektor
Investment shocks and inequality dynamics
Författare
Summary, in English
We explore the dynamics of income and income inequality under asymmetric information in credit markets. Within a stochastic overlapping-generations framework, we study the investment decision of entrepreneurs with heterogeneous abilities. Under information asymmetry, banks do not observe entrepreneurial ability and offer a single pooled loan contract to all entrepreneurs. We show that, following a negative investment shock, the average quality of the entrepreneur pool improves and banks optimally react by lowering the pooled borrowing rate. This reduction in the borrowing rate mitigates the drop in entrepreneurs' income. Consequently, after a negative investment shock, income inequality decreases less compared to the case of full information. Our findings therefore suggest that information asymmetry lessens the fluctuations in income inequality.
Avdelning/ar
- Nationalekonomiska institutionen
Publiceringsår
2021-01
Språk
Engelska
Sidor
570-579
Publikation/Tidskrift/Serie
Economic Modelling
Volym
94
Dokumenttyp
Artikel i tidskrift
Förlag
Elsevier
Ämne
- Economics
Nyckelord
- Credit markets
- Income inequality
- Information asymmetry
- Investment
Status
Published
ISBN/ISSN/Övrigt
- ISSN: 0264-9993