Business Cycle Fluctuations in Mirrlees Economies: The Case of I.I.D. Shocks

51 Pages Posted: 27 Apr 2020

See all articles by Marcelo Veracierto

Marcelo Veracierto

Federal Reserve Bank of Chicago - Research Department

Date Written: December 2019

Abstract

I consider a real business cycle model in which agents have private information about the i.i.d. realizations of their value of leisure. For the case of logarithmic preferences I provide an analytical characterization of the solution to the associated mechanism design problem. Moreover, I show a striking irrelevance result: That the stationary behavior of all aggregate variables are exactly the same in the private information economy as in the full information case. Numerical simulations indicate that the irrelevance result approximately holds for more general CRRA preferences.

Keywords: Risk sharing, business cycles, private information, social insurance, optimal contracts, heterogeneous agents

Suggested Citation

Veracierto, Marcelo, Business Cycle Fluctuations in Mirrlees Economies: The Case of I.I.D. Shocks (December 2019). FRB of Chicago Working Paper No. WP-2020-04, Available at SSRN: https://ssrn.com/abstract=3584768 or http://dx.doi.org/10.2139/ssrn.3584768

Marcelo Veracierto (Contact Author)

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604-1413
United States
(312) 322-6595 (Phone)

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