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Capital Accumulation And Moral Hazard In An Economy With Heterogeneous Agents

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  • Radim Bohacek

    (CERGE, Prague)

Abstract

This paper studies a closed economy with a continuum of agents and moral hazard. Economic agents in the economy operate a stochastic production technology with capital and labor inputs in which the latter is private information. I characterize efficient allocations of capital, labor, and consumption in a stationary recursive equilibrium for a decentralized economy with component planners. Allocation and accumulation of capital are facilitated by a 'capital planner' who serves as a financial intermediary for the component planners. In equilibrium, private information lowers the equilibrium interest rate below agents' discount rate and I show that contrary to the private-information endowment economies, a moral-hazard productive economy can exhibit both endogenous lower and upper bounds on the stationary distribution of utility entitlements.

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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Workshop Papers, January 2001 with number 1B.2.

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Date of creation: 04 Jan 2001
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Handle: RePEc:ams:cdws01:1b.2

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Web page: http://www.fee.uva.nl/cendef/
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  1. Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-90, September.
  2. Atkeson Andrew & Lucas Jr. , Robert E., 1995. "Efficiency and Equality in a Simple Model of Efficient Unemployment Insurance," Journal of Economic Theory, Elsevier, vol. 66(1), pages 64-88, June.
  3. 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.
  4. Radim Bohacek, 2001. "The Efficiency-Equality Tradeoff in Welfare State Economies," CERGE-EI Working Papers wp187, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  5. Edward C Prescott & Robert M Townsend, 2010. "Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard," Levine's Working Paper Archive 2069, David K. Levine.
  6. Spear, Stephen E & Srivastava, Sanjay, 1987. "On Repeated Moral Hazard with Discounting," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 599-617, October.
  7. Aubhik Khan & B. Ravikumar, 1998. "Growth and Risk-Sharing with Private Information," Macroeconomics 9802003, EconWPA.
  8. Kehoe, Timothy J & Levine, David K, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 865-88, October.
  9. 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.
  10. Atkeson, Andrew & Lucas, Robert E, Jr, 1992. "On Efficient Distribution with Private Information," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 427-53, July.
  11. Andrew Atkeson, 2010. "International lending with moral hazard and risk of repudiation," Levine's Working Paper Archive 200, David K. Levine.
  12. Fernandes, Ana & Phelan, Christopher, 2000. "A Recursive Formulation for Repeated Agency with History Dependence," Journal of Economic Theory, Elsevier, vol. 91(2), pages 223-247, April.
  13. Lucas, Robert E, Jr, 1992. "On Efficiency and Distribution," Economic Journal, Royal Economic Society, vol. 102(411), pages 233-47, March.
  14. Aubhik Khan & B. Ravikumar, 2002. "Enduring relationships in an economy with capital," Working Papers 02-5, Federal Reserve Bank of Philadelphia.
  15. Phelan Christopher, 1995. "Repeated Moral Hazard and One-Sided Commitment," Journal of Economic Theory, Elsevier, vol. 66(2), pages 488-506, August.
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