Intertemporal borrowing to sustain exogenous consumption standards under uncertainty

Debraj Ray

    Research output: Contribution to journalArticle

    Abstract

    Consider an agent who is attempting to maintain a given consumption level over time, in the face of a stochastic technology. He is permitted to borrow and lend at given rates of interest. The main results are: (i) if the borrowing rate of interest exceeds the lending rate, the expected net indebtedness of the agent must grow unboundedly large, unless the consumption target is attainable with at most one loan, and (ii) the probabilities of the two events: becoming increasingly indebted, and accumulating unbounded wealth, sum to unity.

    Original languageEnglish (US)
    Pages (from-to)72-87
    Number of pages16
    JournalJournal of Economic Theory
    Volume33
    Issue number1
    DOIs
    StatePublished - Jun 1984

    ASJC Scopus subject areas

    • Economics and Econometrics

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