14.4 Inequality and Financial Markets
A large body of work links, theoretically, inequality and financial markets. The lack of complete markets helps to shape inequality through two channels. In Section 14.4.1 we study how the limited access to borrowing prevents poor households from undertaking valuable investments. This limited access keeps them and their descendants from climbing the social ladder. In Section 14.4.2 we study environments in which access to borrowing affects inequality, even when there are no household-specific investments.
In the environments studied in the first two sections, the borrowing limits are set exogenously. In Section 14.4.3 we start exploring endogenous theories of the borrowing limit by looking at environments ...
