Journal Article

Efficient Allocations with Hidden Income and Hidden Storage

Harold L. Cole and Narayana R. Kocherlakota

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 68, issue 3, pages 523-542
Published in print July 2001 | ISSN: 0034-6527
Published online July 2001 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00179
Efficient Allocations with Hidden Income and Hidden Storage

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We consider an environment in which individuals receive income shocks that are unobservable to others and can privately store resources. We provide a simple characterization of the unique efficient allocation of consumption in cases in which the rate of return on storage is sufficiently high or, alternatively, in which the worst possible outcome is sufficiently dire. We show that, unlike in environments without unobservable storage, the symmetric efficient allocation of consumption is decentralizable through a competitive asset market in which individuals trade riskfree bonds among themselves.

Journal Article.  0 words. 

Subjects: Economics

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