Efficient Allocations with Hidden Income and Hidden Storage

Harold Cole and Narayana Kocherlakota

The Review of Economic Studies, 2001, vol. 68, issue 3, 523-542

Abstract: 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.

Date: 2001
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Related works:
Working Paper: Efficient Allocations with Hidden Income and Hidden Storage (2010)
Working Paper: Efficient allocations with hidden income and hidden storage (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:68:y:2001:i:3:p:523-542.

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