Anonymity and Individual Risk

Pamela Labadie
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Pamela Labadie: George Washington University

No 637, 2007 Meeting Papers from Society for Economic Dynamics

Abstract: Anonymity in the market place is a cornerstone of the standard competitive equilibrium framework in which agents are assumed to be price takers. Anonymity is formally incorporated into the model by assuming that the central planner is unable to determine who is who, even though the planner knows the distribution of individual risks and characteristics of the economy. The constrained Pareto optimal allocation has the property that it is envy-free in that there are fair net trades for all agents. This results in a conflict between equity and efficiency. The allocation, which also has the property that it is coalitionally fair, will result in a distribution of the intertemporal marginal rate of substitution across heterogeneous agents. This has strong implications for the stochastic discount factor used in dynamic, stochastic general equilibrium models.

Date: 2007
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