Long-run growth and intragenerational transfer under capital market imperfections

The purpose of this paper is to provide a long-run growth model linking growth to income distribution between lenders and borrowers in an environment where enforcement of loan contracts is imperfect. The equilibrium under costly verification implies a smaller growth rate, relative to the symmetric-information economy. Intragenerational transfer of income is shown to promote growth so long as the redistribution gives rise to an increase in net worth positions of borrowers.