Credit in a Random Matching Model with Private Information

We consider a random matching model where agents have complete access to each others' histories. Exchange is motivated by risk sharing given random unobservable incomes. There is capital accumulation and an endogenous interest rate. The key feature of this environment is that information is mobile across locations while there are frictions associated with transporting goods. Optimal allocations in the dynamics private information environment resemble real-world credit arrangements in that there are credit balance, credit limits, and installment payments. The steady state has the property that there is a limiting distribution of expected utility entitlements with mobility and a positive fraction of agents who are credit constrained. (Copyright: Elsevier)