Social optima in economies with heterogeneous agents

Nuño, Galo; Moll, Benjamin

doi:10.1016/j.red.2017.08.003

Cited by 66 publications

(35 citation statements)

References 36 publications

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“…Our main result that the sign of the optimal policy differs depending on the stage of development emphasizes the importance of examining time-varying optimal policy. Some recent work has developed numerical methods for finding social optima with fully time-varying tax instruments (Nuño and Moll (2018)), but this is currently only feasible in simpler environments. parameterized by a triplet of the initial tax rate τ , the steady-state tax rateτ , and the convergence rate γ .…”

Section: Quantitative Modelmentioning

confidence: 99%

Optimal Development Policies With Financial Frictions

Itskhoki¹,

Moll²

2019

Econometrica

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103

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Is there a role for governments in emerging countries to accelerate economic development by intervening in product and factor markets? To address this question, we study optimal dynamic Ramsey policies in a standard growth model with financial frictions. The optimal policy intervention involves pro-business policies like suppressed wages in early stages of the transition, resulting in higher entrepreneurial profits and faster wealth accumulation. This, in turn, relaxes borrowing constraints in the future, leading to higher labor productivity and wages. In the long run, optimal policy reverses sign and becomes pro-worker. In a multi-sector extension, optimal policy subsidizes sectors with a latent comparative advantage and, under certain circumstances, involves a depreciated real exchange rate. Our results provide an efficiency rationale, but also identify caveats, for many of the development policies actively pursued by dynamic emerging economies.

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Section: Quantitative Modelmentioning

confidence: 99%

Optimal Development Policies With Financial Frictions

Itskhoki¹,

Moll²

2019

Econometrica

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103

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“…Fourth, Parra-Alvarez, Posch, and Wang (2017) discuss how to identify and estimate continuous-time Aiyagari-Bewley-Huggett models. Fifth, Nuño and Moll (2017) and Nuño and Thomas (2017) devise a method for computing social optima in such environments. Sixth, Shaker Akhtekhane (2017) extends our computational approach to economies with heterogeneous firmsà la Hopenhayn (1992).…”

Section: Introductionmentioning

confidence: 99%

Income and Wealth Distribution in Macroeconomics: A Continuous-Time Approach

Achdou

Han

Lasry

et al. 2017

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and seminar participants at various institutions for useful comments. We also thank Déborah Sanchez for stimulating discussions in early stages of this project and SeHyoun Ahn, Riccardo Cioffi, Xiaochen Feng and Max Vogler for outstanding research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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“…An LQ social optimum model is studied in [47] for a large number of weakly coupled agents choosing cooperatively between multiple destinations. A nonlinear social optimization problem for an infinite horizon economy is analyzed in [41], where necessary conditions of the social optimum are derived by using Gateaux derivatives and Lagrangian multipliers due to market clearing equality constraints. A discrete time LQ social optimization problem of a finite number of subsystems with mean-field state coupling is analyzed in [2] to obtain optimal control laws for both full observation and partial observation cases; this problem is called team-optimization to emphasize decentralized information structures.…”

Section: Introductionmentioning

confidence: 99%

Linear quadratic mean field social optimization: Asymptotic solvability

Huang

Yang

2019

2019 IEEE 58th Conference on Decision and Control (CDC)

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This paper considers a linear-quadratic (LQ) mean field control problem involving a major player and a large number of minor players, where the dynamics and costs depend on random parameters. The objective is to optimize a social cost as a weighted sum of the individual costs under decentralized information. We apply the person-by-person optimality principle in team decision theory to the finite population model to construct two limiting variational problems whose solutions, subject to the requirement of consistent mean field approximations, yield a system of forwardbackward stochastic differential equations (FBSDEs). We show the existence and uniqueness of a solution to the FBSDEs and obtain decentralized strategies nearly achieving social optimality in the original large but finite population model. ).

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Social optima in economies with heterogeneous agents

Cited by 66 publications

References 36 publications

Optimal Development Policies With Financial Frictions

Optimal Development Policies With Financial Frictions

Income and Wealth Distribution in Macroeconomics: A Continuous-Time Approach

Linear quadratic mean field social optimization: Asymptotic solvability

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