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Social Optima in Economies with Heterogeneous Agents

Author

Listed:
  • Galo Nuno

    (Banco de Espana)

  • Benjamin Moll

    (Princeton University)

Abstract

This paper analyzes the problem of computing the social optimum in models with heterogeneous agents subject to idiosyncratic shocks. This is equivalent to a deterministic optimal control problem in which the state variable is the infinite-dimensional cross-sectional distribution. We show how, in continuous time, the problem can be broken down into two finite-dimensional partial differential equations: a dynamic programming equation and the law of motion of the distribution, and we introduce a new numerical algorithm to solve it. We illustrate this methodology with two examples: social optima in an Aiyagari economy with stochastic lifetimes and in a model of on-the-job search with learning. (Copyright: Elsevier)

Suggested Citation

  • Galo Nuno & Benjamin Moll, 2018. "Social Optima in Economies with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 150-180, April.
    • Handle: RePEc:red:issued:15-330
    DOI: 10.1016/j.red.2017.08.003
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    Cited by:

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    2. Paulo B. Brito, 2022. "The dynamics of growth and distribution in a spatially heterogeneous world," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 21(3), pages 311-350, September.
    3. Matthias Birkner & Niklas Scheuer & Klaus Wälde, 2023. "The dynamics of Pareto distributed wealth in a small open economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(2), pages 607-644, August.
    4. Schünemann, Johannes & Trimborn, Timo, 2023. "Boosting taxes for boasting about houses? Status concerns in the housing market," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 120-143.
    5. Jiequn Han & Yucheng Yang & Weinan E, 2021. "DeepHAM: A Global Solution Method for Heterogeneous Agent Models with Aggregate Shocks," Papers 2112.14377, arXiv.org, revised Feb 2022.
    6. Faggian, Silvia & Gozzi, Fausto & Kort, Peter M., 2021. "Optimal investment with vintage capital: Equilibrium distributions," Journal of Mathematical Economics, Elsevier, vol. 96(C).
    7. Christian Loenser & Joost Röttger & Andreas Schabert, 2022. "Financial Regulation, Interest Rate Responses, and Distributive Effects," ECONtribute Discussion Papers Series 143, University of Bonn and University of Cologne, Germany.
    8. Thomas J. Sargent & John Stachurski, 2024. "Dynamic Programming: Finite States," Papers 2401.10473, arXiv.org.
    9. Bayer, Christian & Rendall, Alan D. & Wälde, Klaus, 2019. "The invariant distribution of wealth and employment status in a small open economy with precautionary savings," Journal of Mathematical Economics, Elsevier, vol. 85(C), pages 17-37.
    10. Fischer, Thomas, 2019. "Determinants of Wealth Inequality and Mobility in General Equilibrium," Working Papers 2019:22, Lund University, Department of Economics.
    11. Rendahl, Pontus, 2022. "Continuous vs. discrete time: Some computational insights," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).

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    More about this item

    Keywords

    Kolmogorov forward equation; Gateaux derivative; wealth distribution; social welfare function; mean field control;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D3 - Microeconomics - - Distribution
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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