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 efficient allocation 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 is decentralizable through a competitive asset market in which individuals trade risk-free bonds among themselves.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 238.
Date of creation: 1999
Date of revision:
Publication status: Published in Review of Economic Studies (Vol. 68, No. 3, July 2001, pp. 523-542)
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 Kocherlakota, 2010. "Efficient Allocations with Hidden Income and Hidden Storage," Levine's Working Paper Archive 1909, David K. Levine.
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