This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Constrained efficiency in the neoclassical growth model with uninsurable idiosyncratic shocks

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Julio Davila () (CERMSEM, University of Pennsylvania et ECARES (ULB))
Jay H. Hong () (University of Pennsylvania)
Per Krusell () (Princeton University, IIES et CAERP)
José-Victor Rios Rull () (University of Pennsylvania et CAERP)

Additional information is available for the following registered author(s):

Abstract

We investigate the welfare properties of the one-sector neoclassic growth model with uninsurable idiosyncratic shocks. We focus on the constrained efficiency notion of the general equilibrium literature, and we demonstrate constrained inefficiency for our model. We provide a characterization of constrained efficiency that uses the first-order condition of a constrained planner's problem that points to the margins of relevance for whether capital is too high or too low : the income composition of the (consumption) poor. We calibrate our benchmark model parameters governing idiosyncratic risks to the U.S. earnings and wealth distribution, and for this distribution the income of the poor is mainly composed of labor earnings. We compute the constrained-efficient allocations -including transition dynamics- for our model economy, and we conclude that the long-run capital stock in a laissez faire world is not only too low, but much too low. We also show that one can find parameterizations with different qualitative features : in one case, the steady-state capital stock is too high, and in another case no steady state exists.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2005/B05066.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number b05066.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 52 pages
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:mse:wpsorb:b05066

Contact details of provider:
Postal: 106 - 112 boulevard de l'H�pital, 75647 Paris cedex 13
Phone: 01 44 07 81 00
Fax: 01 44 07 81 09
Email:
Web page: http://mse.univ-paris1.fr/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Jacqueline Pradel).

Related research
Keywords: Constrained efficiency idiosyncratic risk neoclassical growth model.

Other versions of this item:

Find related papers by JEL classification:
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22. [Downloadable!]
    Other versions:
  2. repec:cup:macdyn:v:1:y:1997:i:2:p:387-422 is not listed on IDEAS
  3. Josep Pijoan-Mas 2 & Antonia Díaz & José-Víctor Ríos-Rull, 2001. "Habit Formation: Inplications For The Wealth Distribution," Economics Working Papers we015114, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  4. Mark Huggett, 1995. "The one-sector growth model with idiosyncratic shocks," Discussion Paper / Institute for Empirical Macroeconomics 105, Federal Reserve Bank of Minneapolis. [Downloadable!]
  5. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181. [Downloadable!] (restricted)
  6. Abowd, John M & Card, David, 1987. "Intertemporal Labor Supply and Long-term Employment Contracts," American Economic Review, American Economic Association, vol. 77(1), pages 50-68, March. [Downloadable!] (restricted)
    Other versions:
  7. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 173-208, January. [Downloadable!] (restricted)
  8. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-85, December. [Downloadable!] (restricted)
  9. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May. [Downloadable!] (restricted)
  10. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March. [Downloadable!] (restricted)
  11. Kehoe, Timothy J & Levine, David K, 1993. "Debt-Constrained Asset Markets," Review of Economic Studies, Blackwell Publishing, vol. 60(4), pages 865-88, October. [Downloadable!] (restricted)
    Other versions:
  12. Geanakoplos, J. & Magill, M. & Quinzii, M. & Dreze, J., 1990. "Generic inefficiency of stock market equilibrium when markets are incomplete," Journal of Mathematical Economics, Elsevier, vol. 19(1-2), pages 113-151. [Downloadable!] (restricted)
    Other versions:
  13. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July. [Downloadable!] (restricted)
  14. Imrohoruglu, Ayse, 1989. "Cost of Business Cycles with Indivisibilities and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1364-83, December. [Downloadable!] (restricted)
  15. Stiglitz, Joseph E, 1982. "The Inefficiency of the Stock Market Equilibrium," Review of Economic Studies, Blackwell Publishing, vol. 49(2), pages 241-61, April. [Downloadable!] (restricted)
  16. S. Rao Aiyagari & Ellen R. McGrattan, 1994. "The optimal quantity of debt," Working Papers 538, Federal Reserve Bank of Minneapolis.
    Other versions:
  17. Santiago Budria Rodriguez & Javier Diaz-Gimenez & Vincenzo Quadrini & Jose-Victor Rior-Rull, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-35. [Downloadable!]
  18. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969. [Downloadable!] (restricted)
  19. 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:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Josep Pijoan-Mas, 2006. "Precautionary Savings or Working Longer Hours?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 326-352, April. [Downloadable!] (restricted)
    Other versions:
  2. Arpad Abraham & Eva Carceles-Poveda, 2006. "Complete Markets, Enforcement Constraints and Intermediation," Computing in Economics and Finance 2006 320, Society for Computational Economics. [Downloadable!]
    Other versions:
  3. Narayana R. Kocherlakota, 2007. "Money and bonds: an equivalence theorem," Staff Report 393, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? RePEc also has a blog.

This page was last updated on 2008-9-17.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.