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Social optima in economies with heterogeneous agents

Nuño, Galo and Moll, Benjamin (2018) Social optima in economies with heterogeneous agents. Review of Economic Dynamics, 28. 150 - 180. ISSN 1094-2025

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Identification Number: 10.1016/j.red.2017.08.003

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.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/review-of-ec...
Additional Information: © 2017 Elsevier Inc
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
Date Deposited: 06 Nov 2019 14:03
Last Modified: 20 Oct 2021 00:59
URI: http://eprints.lse.ac.uk/id/eprint/102399

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