Keywords: Asset pooling, credit rationing, roscas, growth
Abstract: I study the effect of improved financial intermediation on the process
of capital accumulation by augmenting a standard model with a general
contract space. With the extra contracts, intermediaries endogenously
begin using ROSCAs, or Rotating Savings and Credit Associations.
These contracts allow poor agents, previously credit rationed, access
to credit. As a result, agents work harder and total economy-wide
output increases; however, these gains come at the cost of increased
inequality. I provide sufficient conditions for the allocations to be
Pareto optimal, and for there to be a unique invariant distribution of
wealth. I provide an analytic characterization of a simple model and
use numerical techniques to study more general models.
Full paper (462 KB PDF)
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