Business Cycle Fluctuations in Mirrlees Economies: The Case of i.i.d. Shocks

Marcelo Veracierto

No WP 2020-04, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: 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.

Keywords: heterogeneous agent; business cycles; private information; social insurance; RBC model; Log consumption; optimal contracts (search for similar items in EconPapers)
JEL-codes: D16 E60 F41 F44 (search for similar items in EconPapers)
Pages: 51
Date: 2019-12-15
New Economics Papers: this item is included in nep-dge, nep-ias, nep-mac and nep-upt
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Journal Article: Business cycle fluctuations in Mirrlees economies: The case of i.i.d. shocks (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:87508

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DOI: 10.21033/wp-2020-04

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