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Capital Accumulation in Private Information Economies

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  • Bohacek Radim

    () (CERGE-EI)

Abstract

This paper provides a general methodology for introducing capital accumulation into economies with private information and heterogeneous agents. The agents operate a stochastic neoclassical production technology with capital and labor input. I study a moral hazard economy with unobservable input (hidden action). I characterize the efficient allocation of capital, labor, and consumption in a stationary recursive competitive equilibrium. The economy is decentralized by the component planner approach developed by Atkeson and Lucas (1995). Accumulation of capital is facilitated by a "capital planner" who serves as a financial intermediary for the component planners. In the unique, feasible and non-degenerate stationary equilibrium, private information lowers the market-clearing interest rate below agents' discount rate.

Suggested Citation

  • Bohacek Radim, 2005. "Capital Accumulation in Private Information Economies," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-24, December.
  • Handle: RePEc:bpj:bejmac:v:topics.5:y:2005:i:1:n:24
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    References listed on IDEAS

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    1. Casey B. Mulligan & Xavier Sala-i-Martin, 1993. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 739-773.
    2. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 63(1), pages 113-142, June.
    3. Caballe, Jordi & Santos, Manuel S, 1993. "On Endogenous Growth with Physical and Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1042-1067, December.
    4. Xie Danyang, 1994. "Divergence in Economic Performance: Transitional Dynamics with Multiple Equilibria," Journal of Economic Theory, Elsevier, vol. 63(1), pages 97-112, June.
    5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Cheng Wang, 2000. "Renegotiation-Proof Dynamic Contracts with Private Information," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 396-422, July.
    2. Gian Luca Clementi & Thomas Cooley & Sonia Di Giannatale, 2010. "A Theory of Firm Decline," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 861-885, October.
    3. Yili Chien & Junsang Lee, 2006. "Why Tax Capital?," 2006 Meeting Papers 492, Society for Economic Dynamics.
    4. Latchezar Popov & B Ravikumar & Aubhik Khan, 2012. "Enduring Relationships in an Economy with Capital and Private Information," 2012 Meeting Papers 1056, Society for Economic Dynamics.

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