1
$\begingroup$

I am curious how to solve the utility maximization problem if the representative agent has borrowing constraint.

$\endgroup$

1 Answer 1

3
$\begingroup$

The constraint $g(x)\geq 0$ is binding if in optimum $g(x) = 0$ rather than the constraint being slack $g(x)>0$.

$\endgroup$
2
  • $\begingroup$ Thank you. How can I solve the problem with such an inequality constraint, like, a' > a_bar? $\endgroup$
    – Carl
    Dec 22, 2020 at 4:21
  • 1
    $\begingroup$ You can make a new question here on the site to get help. Standard procedure is to use Lagrange. $\endgroup$
    – bomadsen
    Dec 22, 2020 at 4:25

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.