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On Ramsey's conjecture: efficient allocations in the neoclassical growth model with private information

  • Espino, Emilio

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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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 121 (2005)
Issue (Month): 2 (April)
Pages: 192-213

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Handle: RePEc:eee:jetheo:v:121:y:2005:i:2:p:192-213
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Aubhik Khan & B. Ravikumar, 1999. "Growth and risk-sharing with private information," Working Papers 99-12, Federal Reserve Bank of Philadelphia.
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