On the possibility of Krusell-Smith Equilibria

Tobias Broer (), Alexandre Kohlhas, Kurt Mitman and Kathrin Schlafmann
Additional contact information
Tobias Broer: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Alexandre Kohlhas: IIES - Institute for International Economic Studies

PSE-Ecole d'économie de Paris (Postprint) from HAL

Abstract: Solutions to macroeconomic models with wealth inequality and aggregate shocks often rely on the assumption of limited but common information among households. We show that this assumption is inconsistent with rational information choice for plausible information costs. To do so, we embed information choice into the workhorse heterogeneous-agent model with aggregate risk (Krusell and Smith, 1998). First, we demonstrate that the benefits of acquiring more precise information about the state of the economy depend crucially on household wealth. Second, we show that such heterogeneous incentives to acquire information combine with the strategic substitutability of savings choices to imply that equilibria in which households acquire the same information do not exist for plausible information costs. Finally, we document that a representative-agent equilibrium may not exist even in the absence of exogenous sources of wealth heterogeneity.

Keywords: Expectations; Heterogeneity; Information (search for similar items in EconPapers)
Date: 2022-08
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Economic Dynamics and Control, 2022, 141, ⟨10.1016/j.jedc.2022.104391⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: On the possibility of Krusell-Smith Equilibria (2022)
Working Paper: On the possibility of Krusell-Smith Equilibria (2022)
Working Paper: On the Possibility of Krusell-Smith Equilibria (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-03758982

DOI: 10.1016/j.jedc.2022.104391

Access Statistics for this paper

More papers in PSE-Ecole d'économie de Paris (Postprint) from HAL
Bibliographic data for series maintained by Caroline Bauer ().