Efficient Allocations with Hidden Income and Hidden Storage
AbstractWe consider an environment in which individuals receive income shocks that are unobservable to others and can privately store resources. We provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or, alternatively, in which the worst possible outcome is sufficiently dire. We show that, unlike in environments without unobservable storage, the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade risk-free bonds among themselves. Copyright 2001 by The Review of Economic Studies Limited
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Bibliographic InfoPaper provided by David K. Levine in its series Levine's Working Paper Archive with number 1909.
Date of creation: 08 Dec 2010
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Other versions of this item:
- Cole, Harold L & Kocherlakota, Narayana R, 2001. "Efficient Allocations with Hidden Income and Hidden Storage," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 523-42, July.
- Harold L. Cole & Narayana R. Kocherlakota, 1999. "Efficient allocations with hidden income and hidden storage," Staff Report 238, Federal Reserve Bank of Minneapolis.
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