Social Optima in Economies with Heterogeneous Agents

Galo Nuño Barrau and Benjamin Moll

Review of Economic Dynamics, 2018, vol. 28, 150-180

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. (Copyright: Elsevier)

Keywords: Kolmogorov forward equation; Gateaux derivative; wealth distribution; social welfare function; mean field control (search for similar items in EconPapers)
JEL-codes: C6 D3 D5 E2 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (19)

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DOI: 10.1016/j.red.2017.08.003

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