In this paper we investigate the macroeconomic equilibria of an economy in which credit contracts have both the adverse selection and incentive effects. The terms of credit contracts include both an interest rate and a collateral requirement. We show that in this richer model all types of...

One often heard counter to the concern on rising income and wealth inequality is that it is wrong to focus on inequality of outcomes in a “snapshot.” Intergenerational mobility and “equality of opportunity”, so the argument goes, is what matters for normative evaluation. In response to...