Collateral constraints and rental markets

By Hippolyte D’Albis and Eleni Iliopulos

http://d.repec.org/n?u=RePEc:hal:pseose:hal-00964867&r=dge

We study a benchmark model with collateral constraints and heterogeneous discounting. Contrarily to a rich literature on borrowing limits, we allow for rental markets. By incorporating this missing market, we show that impatient agents choose to rent rather than to own the collateral in the neighborhood of the deterministic steady state. Consequently, impatient agents are not indebted and borrowing constraints play no role in local dynamics.

This short paper makes a very simple point that merits highlighting. Indeed, only few models include rental markets, and as this paper shows, this can have important implications on the results.

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