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Constrained-Efficient Capital Reallocation / Andrea Lanteri, Adriano A. Rampini.
- Format:
- Book
- Author/Creator:
- Lanteri, Andrea.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w28384.
- NBER working paper series no. w28384
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2021.
- Summary:
- We characterize efficiency in an equilibrium model of investment and capital reallocation with heterogeneous firms facing collateral constraints. The model features two types of pecuniary externalities: collateral externalities, because the resale price of capital affects collateral constraints, and distributive externalities, because buyers of old capital are more financially constrained than sellers, consistent with empirical evidence. We prove that the stationary-equilibrium price of old capital is inefficiently high, because the distributive pecuniary externality exceeds the collateral externality, by a factor of two in our calibrated model. New investment reduces the future price of old capital, providing a rationale for new-investment subsidies.
- Notes:
- Print version record
- January 2021.
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