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Constrained-Efficient Capital Reallocation
We analyze the constrained-efficient allocation in an equilibrium model of investment and capital reallocation with heterogeneous firms facing collateral constraints. More financially constrained firms buy old capital, consistent with empirical evidence. Thus, new investment induces a positive externality by reducing the future price of old capital, fostering reallocation toward more constrained firms. The equilibrium price of old capital is inefficiently high in general, because this distributive pecuniary externality exceeds the collateral externality, by a factor two in the calibrated model. The constrained-efficient allocation induces a consumption-equivalent welfare gain of 5\% compared to the competitive equilibrium, and can be implemented with subsidies on new capital and taxes on old capital.
Link to paper: drive.google.com/file/d/1XxbO20XFDsbuSlh4fe4Pj1-zvb70W0to/view
Date:
17 November 2020, 13:00
Venue:
Held on Zoom
Speaker:
Andrea Lanteri (Duke University)
Organising department:
Department of Economics
Part of:
Macroeconomics Seminar
Booking required?:
Not required
Audience:
Members of the University only
Editor:
Melis Clark
