Controlling a Distribution of Heterogeneous Agents

44 Pages Posted: 22 Nov 2015

See all articles by Galo Nuño

Galo Nuño

Banco de España

Benjamin Moll

Princeton University - Department of Economics

Date Written: November 20, 2015

Abstract

This paper analyzes the problem of a benevolent planner wishing to control a population of heterogeneous agents subject to idiosyncratic shocks. This is equivalent to a deterministic control problem in which the state variable is the cross-sectional distribution. We show how, in continuous time, this problem can be broken down into a dynamic programming equation plus the law of motion of the distribution, and we introduce a new numerical algorithm to solve it. As an application, we analyze the constrained-efficient allocation of an Aiyagari economy with a fat-tailed wealth distribution. We find that the constrained-efficient allocation features more wealth inequality than the competitive equilibrium.

Keywords: Kolmogorov forward equation, wealth distribution, social welfare function, mean field control

JEL Classification: C6, D3, D5, E2

Suggested Citation

Nuno, Galo and Moll, Benjamin, Controlling a Distribution of Heterogeneous Agents (November 20, 2015). Banco de Espana Working Paper No. 1533. Available at SSRN: https://ssrn.com/abstract=2693542 or http://dx.doi.org/10.2139/ssrn.2693542

Galo Nuno (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Benjamin Moll

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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