Computing Multi-Period, Information Constrained Optima
This paper presents a detailed theoretical derivation and justification for methods used to compute solutions to a multiperiod (including infinite-period), continuum-agent, unobserved-effort economy. Actual solutions are displayed illustrating cross-sectional variability in consumption and labor effort in the population at a point in time and variability for a typical individual over time. The optimal tradeoff between insurance and incentives is explored and the issue of excess variability is addressed by consideration of the analogue full-information economy and various restricted-contracting regimes. Copyright 1991 by The Review of Economic Studies Limited.
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