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27/07/2022

On the Existence of a Ramsey Equilibrium with Endogenous Labor Supply and Borrowing Constraints

In this paper, we study the existence of an intertemporal equilibrium
in a Ramsey model with heterogenous discounting, elastic labor supply
and borrowing constraints. Applying a fixed-point argument by Gale and
Mas-Colell (1975), we prove the existence of an equilibrium in a truncated
bounded economy. This equilibrium is also an equilibrium of any
unbounded economy with the same fundamentals. Finally, we prove the
existence of an equilibrium of an infinite-horizon economy as a limit of a
sequence of truncated economies. On the one hand, our paper generalizes
Becker et al. (1991) because of the elastic labor supply and, on the other
hand, Bosi and Seegmuller (2010) because of a proof of global existence.
Our methodology can be applied to other Ramsey models with different
market imperfections.