TY - JOUR
AU1 - Kapika, Marek
AB - This article studies efficient allocations in a dynamic private information economy with a continuum of idiosyncratic shocks that are persistent. I develop a first-order approach for this environment and show that the problem has a simple recursive structure that relies on only a small number of state variables, making the problem tractable. I find sufficient conditions that guarantee that the first-order approach is valid. To illustrate the first-order approach I numerically compute the efficient allocations in a Mirrleesean economy with productivity shocks that follow a random walk and verify the validity of the first-order approach. I show that persistent shocks create a new trade-off where the social planner decreases the informational rent of the agent today at the cost of providing higher insurance in the future.
TI - Efficient Allocations in Dynamic Private Information Economies with Persistent Shocks: A First-Order Approach
JF - The Review of Economic Studies
DO - 10.1093/restud/rds045
DA - 2013-07-20
UR - https://www.deepdyve.com/lp/oxford-university-press/efficient-allocations-in-dynamic-private-information-economies-with-MW9h4HTn4i
SP - 1027
EP - 1054
VL - 80
IS - 3
DP - DeepDyve
ER -