Capital Accumulation in an Economy with Heterogeneous Agents and Moral Hazard
Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)
January 2, 2001
CERGE-EI Working Paper Series No. 165
This paper studies a closed economy with a continuum of agents and moral hazard. Economic agents in the economy operate a stochastic production technology with capital and labor inputs in which the latter is private information. I characterize efficient allocations of capital, labor, and consumption in a stationary recursive equilibrium for a decentralized economy with component planners. Allocation and accumulation of capital are facilitated by a `capital planner' who serves as a financial intermediary for the component planners. In equilibrium, private information lowers the equilibrium interest rate below agents' discount rate and I show that contrary to the private-information endowment economies, a moral-hazard productive economy can exhibit both endogenous lower and upper bounds on the stationary distribution of utility entitlements.
Number of Pages in PDF File: 28
JEL Classification: C68, D31, D82, E1working papers series
Date posted: December 20, 2009
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