Adverse Selection, Risk Sharing and Business Cycles

Marcelo Veracierto

No 1574, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: I consider a real business cycle model in which agents have private information about their stochastic 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. I then introduce a new computational method to show that the irrelevance result holds numerically for more general CRRA preferences.

Date: 2017
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-mac and nep-upt
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Related works:
Working Paper: Adverse Selection, Risk Sharing and Business Cycles (2015)
Working Paper: Adverse Selection, Risk Sharing and Business Cycles (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:1574

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