(with Dilip Mookherjee), American Economic Journal Microeconomics 2 38–76, 2010.
Summary. This paper studies income distribution in an economy with borrowing constraints. If the span of occupational investments is large, long-run wealth distributions display persistent inequality. With a “rich” set of occupations, so that training costs form an interval, the distribution is unique and the average return to education must rise with educational investment.
(with Carlo Andreatta), October 2026.
Summary. We study the welfare consequences of social planning for citizens who display hedonistic altruism towards the next generation. A social planner must effectively be more patient than its citizens, even if every citizen has the same discount factor, but the planner also exhibits time inconsistency and has systematic future bias. We presume that successive generations of planners cannot bind one another to a course of action. Our main result states that every equilibrium policy with positive consumption that is nondecreasing in initial output must be either fully Pareto optimal, or “consumption inefficient” in the sense of Malinvaud (1953) and Phelps (1962, 1965). Moreover, we provide sufficient conditions for either outcome to occur.
(with Parikshit Ghosh), Economica 83, 59–90, 2016.
Summary. We study loan enforcement in informal credit markets with multiple lenders but no sharing of credit histories, and derive the dynamics of loan size and interest rates for relational lending. In the presence of a sufficient fraction of ‘natural defaulters’, the rest of the market can be incentivized against default by micro-rationing—sharper credit limits and possibly higher interest rates that serve as gateways into new borrowing relationships. When there are too few natural defaulters in the market, this can be supplemented by macro-rationing—random exclusion of some borrowers. When information collection is endogenized, multiple equilibria may arise. (Published version of unpublished notes from 2001.)