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On Ramsey's Conjecture: Efficient Allocations in the Neoclassical Growth Model with Private Information

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Author Info
Espino, Emilio (Institute for Advanced Studies, Vienna)

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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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File URL: http://www.ihs.ac.at/publications/eco/es-154.pdf
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File Function: First version, 2004
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Publisher Info
Paper provided by Institute for Advanced Studies in its series Economics Series with number 154.

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Length: 40 pages
Date of creation: May 2004
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Handle: RePEc:ihs:ihsesp:154

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Related research
Keywords: Dynamic contracts; Capital accumulation; Private information;

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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  1. Wang, Cheng, 1995. "Dynamic Insurance with Private Information and Balanced Budgets," Review of Economic Studies, Blackwell Publishing, vol. 62(4), pages 577-95, October. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
  3. Atkeson, Andrew & Lucas, Robert E, Jr, 1992. "On Efficient Distribution with Private Information," Review of Economic Studies, Blackwell Publishing, vol. 59(3), pages 427-53, July. [Downloadable!] (restricted)
  4. Albert Marcet & Ramon Marimon, 1992. "Communication, commitment, and growth," Discussion Paper / Institute for Empirical Macroeconomics 74, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  5. Aubhik Khan & B. Ravikumar, 2002. "Enduring relationships in an economy with capital," Working Papers 02-5, Federal Reserve Bank of Philadelphia.
  6. Lucas, Robert Jr. & Stokey, Nancy L., 1984. "Optimal growth with many consumers," Journal of Economic Theory, Elsevier, vol. 32(1), pages 139-171, February. [Downloadable!] (restricted)
    Other versions:
  7. Phelan, Christopher, 1998. "On the Long Run Implications of Repeated Moral Hazard," Journal of Economic Theory, Elsevier, vol. 79(2), pages 174-191, April. [Downloadable!] (restricted)
  8. Khan, Aubhik & Ravikumar, B., 2001. "Growth and risk-sharing with private information," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 499-521, June. [Downloadable!] (restricted)
    Other versions:
  9. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August. [Downloadable!] (restricted)
    Other versions:
  10. Cole, Harold L & Kocherlakota, Narayana R, 2001. "Efficient Allocations with Hidden Income and Hidden Storage," Review of Economic Studies, Blackwell Publishing, vol. 68(3), pages 523-42, July.
    Other versions:
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