Efficient Allocations in Dynamic Private Information Economies with Persistent Shocks: A First-Order Approach

• 成果类型: Article
• 署名作者: Kapicka, Marek
• 署名单位: University of California System; University of California Santa Barbara; Charles University Prague; Czech Academy of Sciences; Economics Institute of the Czech Academy of Sciences
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rds045
• 发表日期: 2013
• 页码: 1027-1054
• 关键词: Income taxation; example

摘要

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.