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On Ramsey's conjecture: efficient allocations in the neoclassical growth model with private information

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  • Espino, Emilio

Abstract

In his seminal paper of 1928, Ramsey conjectured that if agents discounted the future differently, in the long run all agents except the most patient would live at the subsistence level. The validity of this conjecture was investigated in different environments. In particular, it has been confirmed in the neoclassical growth model with dynamically complete markets. This paper studies this conjecture in a version of this model that includes private information and heterogeneous agents. A version of Bayesian Implementation is introduced and a recursive formulation of the original allocation problem is established. Efficient allocations are renegotiation-proof and the expected utility of any agent cannot go to zero with positive probability if the economy does not collapse. If the economy collapses all agents will get zero consumption forever. Thus, including any degree of private information in the neoclassical growth model will deny Ramsey's conjecture, if efficient allocations are considered.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 121 (2005)
Issue (Month): 2 (April)
Pages: 192-213

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Handle: RePEc:eee:jetheo:v:121:y:2005:i:2:p:192-213

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Web page: http://www.elsevier.com/locate/inca/622869

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  1. Wang, Cheng, 1995. "Dynamic Insurance with Private Information and Balanced Budgets," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 577-95, October.
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  8. Albert Marcet & Ramon Marimon, 1991. "Communication, commitment and growth," Economics Working Papers 1, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Phelan, Christopher & Townsend, Robert M, 1991. "Computing Multi-period, Information-Constrained Optima," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 853-81, October.
  10. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August.
  11. Aubhik Khan & B. Ravikumar, 2002. "Enduring relationships in an economy with capital," Working Papers 02-5, Federal Reserve Bank of Philadelphia.
  12. Huggett, Mark, 1997. "The one-sector growth model with idiosyncratic shocks: Steady states and dynamics," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 385-403, August.
  13. Thomas, Jonathan & Worrall, Tim, 1990. "Income fluctuation and asymmetric information: An example of a repeated principal-agent problem," Journal of Economic Theory, Elsevier, vol. 51(2), pages 367-390, August.
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Cited by:
  1. Richard M. H. Suen, 2010. "Time Preference and the Distributions of Wealth and Income," Working Papers 201004, University of California at Riverside, Department of Economics, revised Feb 2010.
  2. Sonia Di Giannatale Menegalli & Gian Luca Clementi & Thomas Cooley, 2008. "A Theory of Firm Decline," Working papers DTE 445, CIDE, División de Economía.
  3. Emilio Espino, 2012. "Investment and Insurance in an Economic Union," 2012 Meeting Papers 1176, Society for Economic Dynamics.
  4. Emilio Espino & Thomas Hintermaier, 2009. "Asset trading volume in a production economy," Economic Theory, Springer, vol. 39(2), pages 231-258, May.
  5. Emilio Espino & Juan M. Sanchez, 2010. "Risk sharing, investment, and incentives in the neoclassical growth model," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 399-416.
  6. Emilio Espino & Julian Kozlowski & Juan M. Sánchez, 2013. "Too big to cheat: efficiency and investment in partnerships," Working Papers 2013-001, Federal Reserve Bank of St. Louis.

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