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Heterogeneous Agent Trade
This paper studies the implications of household heterogeneity for trade. I develop a model where household heterogeneity is induced via incomplete markets and results in heterogeneous price elasticities. Conditional on exposure to trade, heterogeneous price elasticities imply that different households value price changes differently, and thus rich and poor households experience different gains from trade. I calibrate the model to match bilateral trade flows and micro-facts about household-level expenditure patterns and elasticities. I find gains from trade that are pro-poor and that the ...
Working Paper
Implementing the Modified Golden Rule? Optimal Ramsey Capital Taxation with Incomplete Markets Revisited
What is the prescription of Ramsey capital taxation in the long run? Aiyagari (1995) addressed the question in a heterogeneous-agent incomplete-markets (HAIM) economy, showing that a positive capital tax should be imposed to implement the so-called modified golden rule (MGR). In deriving the MGR result, Aiyagari (1995) implicitly assumed that the multiplier on the resource constraint of the Ramsey problem converges to a finite positive value in the limit. We first show that this implicit assumption has a strong implication for the shadow price of Ramsey taxation in the limit: it must go to ...
Working Paper
Business Cycle Fluctuations in Mirrlees Economies: The Case of i.i.d. Shocks
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.